Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Category: Business

  • What happened in 2021 — a review of my predictions for the year

    On January 1st of this year, I wrote a post called, “My 2021 predictions.” It was part of a new practice that I have adopted where I try to forecast the year (I will be wrong) and then evaluate how I did at the end of it (the focus of today’s post). This year was, of course, a tricky year with lots of uncertainty. But here’s where my head was at in January and here’s what ultimately happened.

    Life will feel a lot more normal by spring/summer.

    This more or less happened. Cases, at least here in Ontario, were way down by the summer. Those who wanted to be fully vaccinated had the option to be. Cities reopened and summer felt pretty good after a long winter of lockdowns. As soon as it was possible to do so, we reopened our office and many/most people came back. I ended up being in the office this year more than I wasn’t. Of course, I had no idea that Omicron was going to be a thing back in January.

    Working from home/the office.

    I think the jury remains out on this one. It’s still too early to draw conclusions. I have been in the office full-time for most of this year, but I recognize that that hasn’t been the case for everyone. I know from the super scientific “Jimmy the Greek Reopening Index” that I developed that office utilization rates are not yet back. When I wrote about this topic back in October, the US average was thought to be just below 40%. Still, I remain bullish on office.

    An explosion of global travel.

    Well, Airbnb’s stock isn’t maybe as sky high as I suggested in my predictions post. But it is still up over 19% YTD:

    Marriott is also up nearly 27% YTD:

    The reality is that travel was/is rebounding. I managed to take two weeks off at the end of the summer, which is something I hadn’t done in at least several years. But Omicron has certainly impacted the recovery:

    Urban/downtown real estate will strongly rebound.

    I would argue that we saw this play out in the residential sector. Here in Toronto, Q3-2021 saw condo rents in the core increase 11.4% quarter-over-quarter. This was a fairly significant snapback. It was the largest increase in the region, outpacing both the inner suburbs and the outer suburbs. On the for-sale side, we saw evidence of the condo market returning as early as Q1. We were also able to successfully launch One Delisle and are now preparing to start construction.

    Trends accelerating.

    In some cases, what we saw was a reaction to short-term dislocation. Peloton’s stock is down about 73% YTD at the time of writing this. In other cases, what we saw was just a “pulling forward.” (Link to post by Fred Wilson.) The pandemic led to greater consumption of certain products and services, but now those companies could be headed for a period of slower growth. At the same time, there’s evidence that certain things, like buying more groceries online, may actually be sticking.

    Return of restaurants.

    What seems pretty clear is that people are quicker to return to bars & restaurants than they are to return to the office. As we know, getting together in person is fundamental to urban life. Here’s a chart from OpenTable:

    However, this is not to say that many restaurants didn’t have a tough go during this uncertain time.

    Public transit ridership will return to pre-pandemic levels by the fall.

    I was dead wrong and way too optimistic about this one. Office utilization rates remain lower than expected and so people aren’t commuting in nearly the same way. Those who are, seem to be driving more. As of August, Canada’s urban transit networks were operating, on average, at just over 40% of where they were pre-pandemic (August 2019). This is obviously a serious problem for operating shortfalls.

    Migration from high tax states to (warmer) low tax states.

    This is an established trend in the US and so it was certainly not a bold prediction. There are many other factors at play here beyond simply the pandemic. However, as I mentioned in my original post, what is perhaps more interesting right now is the heightened tension between centralization (urbanity) and decentralization. I’ll see what data I can uncover in the coming weeks, but we likely need to get to the other side of this pandemic before drawing any firm conclusions.

    In reviewing this year’s predictions it is clear that I was perhaps overly optimistic (which is far better than being overly pessimistic) and that missed a lot of important stuff. Some of it was unknowable, such as a new variant, and some of it I just missed, which is bound to happen. I could also be more precise and bolder in my predictions, and so I will endeavor to do that in my upcoming predictions for 2022. Stay tuned.

    If you’re not already an email subscriber to this blog, consider making that happen over here. And for those of you who have been reading all year, thank you. I truly appreciate it.

    Photo by Jamie Curd on Unsplash

  • Self-expression and community move online

    The New Consumer, in collaboration with Coefficient Capital, just published its latest Consumer Trends report, which you can download for free over here (registration required). There’s a lot in the report to flip through, but I thought I would share these two slides:

    Generation Z and Millennials now make up ~40% of the US population and they are soon entering their prime consumer spending years. What’s noteworthy about these charts, but perhaps not surprising, is the extent in which self-expression and a sense of community have shifted from offline to online.

    Very few Boomers, at least according to this report, feel like themselves online. But nearly half of Gen Z feel most like themselves online. What it means to be part of a “community” has also shifted dramatically, with more if it happening online or at least partially online.

    All of this ties into what happened earlier in the week with Nike announcing the acquisition of RTFKT Studios. As I mentioned in this post, the so-called metaverse doesn’t necessarily have to mean VR goggles and living in video games. It can simply mean placing value on the parts of our lives that are now digital. The above two charts suggest that many are already doing this.

    Of course, what all of this means for our physical lives is an important question. Josh Stephens recently argued, over at Planetizen, that the metaverse is going to be really bad for cities. The more we focus on seductive virtual worlds, the less we will focus on our physical spaces. I get this logic.

    But again, I think it depends on how you define the metaverse. And I think VR headsets are a pretty narrow definition. I am both a lover of technology and a lover of cities. And throughout this pandemic I have been fairly consistent in writing about the resiliency of cities. Nothing in this post changes that for me.

  • Of course, Nike buys digital sneaker company

    This week it was announced that Nike has acquired RTFKT Studios (pronounced “artifact”) for an undisclosed amount. When I read the news (official Nike announcement here), I immediately thought to myself, “Yeah, of course!”

    Some of you may remember that I wrote about RTFKT back in April. They are perhaps best known for their digital sneaker NFTs (on the Ethereum blockchain). And so this is an exceedingly obvious and strategic buy for Nike.

    But more importantly, I think this is great validation for the crypto/NFT space and further evidence that our digital and physical worlds are continuing to collide in some new and very interesting ways.

    What this ultimately means for life in 10 or 20 years is anybody’s guess, but sneakers are the tip of the iceberg. And this doesn’t necessarily mean that we’re all destined to live in some sort of metaverse video game.

    Another way to look at this whole metaverse thing is to consider it not as an actual place or space, but instead as a moment in time (Shaan Puri makes this argument here). Put differently, the metaverse is simply a point in time where we begin to bestow tremendous value on our digital life and our digital assets.

    Instagram is one example of this. Profiles have become integral to people’s identifies. We use them to vet restaurants. We use them to vet travel destinations. And we use them to vet potential dating partners, among many other things.

    So while sneaker NFTs might be a new thing, there’s already lots of evidence that digital goods can have just as much value — and potentially even more value — than physical goods. I am sure that Nike recognizes this and it’s part of why they bought RTFKT.

  • Amazon’s supply chain moat is turning out to be useful

    Today, Amazon ships approximately 72% of its own packages. This is up from about 47% in 2019. Ben Thompson of Stratechery recently published an excellent article talking about why this is important and how the company’s investments in logistics are, yet again, paying dividends.

    The foundation of Amazon’s “moat”, Ben argues, is aggregating customer demand. When most people buy something on Amazon from a third party merchant, they think and feel as if they’re buying directly from Amazon. Some people probably don’t even appreciate the difference and in most cases it probably doesn’t matter. It comes in a box with Amazon’s logo on it and that’s that.

    But it’s an important distinction because if you’re a third party merchant, Amazon pretty much “owns” your customers. They are the ones aggregating demand. They have the brand equity and loyalty. And if you left the platform, your customers would be unlikely to follow you.

    This is kind of the opposite of how Shopify’s ecommerce platform works. When you operate a Shopify store you are using their platform, but you are bringing your own brand, web domain, and other assets to it, such that you can now establish a more direct relationship with your customers. This doesn’t mean that Shopify doesn’t have a moat, it’s just something different.

    All things being equal, most businesses would rather “own” their customers than not. The problem right now is that shipping and supply chains are no joke, and so there are real advantages to being on Amazon and having them handle your fulfillment. It could mean the difference between getting your products out for Christmas, or not.

    So all things are not equal.

  • Do, and then theorize

    Architecture school has a way of indoctrinating you with an appreciation for the past. One of the ways that is done is through architecture history and theory classes.

    In my case, I was taught to appreciate the work of Le Corbusier, Mies van der Rohe, Louis Kahn, Adolf Loos, and many other influential architects from the 20th century.

    It was okay to disagree with their ideas, but you at least had to learn about all of the important stuff that they had done and/or thought about. It’s a standing on the shoulders of giants kind of thing.

    But as Witold Rybczynski argues in this recent post, it’s important to keep in mind that history and theories are written after the fact:

    “Some buildings are, in a sense, experiments, and when something works, and is taken up by others, it eventually becomes a rule of thumb, perhaps even a theory.”

    For me, this is yet another reminder that the world moves forward as a result of doing, creating, and making new things happen.

    Sometimes you’ll get it wrong and do the wrong things. But sometimes you’ll do something wonderful that nobody else has thought of before.

    And when then happens, the world will have moved forward such that it’s then possible to look back at what happened and make sense of it all.

    As Witold puts it, “first you build a flying machine, and later you discover the aerodynamic theory that supports flight.”

  • Three steps to the future

    Each year, tech analyst Benedict Evans publishes a “big presentation” on the macro trends in the tech industry. This year’s presentation is now out (link here) and it’s called “Three Steps to the Future.” Not surprisingly, crypto, web3 and the metaverse feature prominently in his exploration of what tech might look like by 2030 (obligatory market cap chart shown above). But there’s also a lot about ecommerce, logistics, TV/content, and a number of other topics and industries. The back half is filled with some great charts and I think that many of you will find it interesting.

  • Being a real estate developer means asking a lot of questions

    I was having coffee with a developer friend of mine this morning and we got onto the topic of asking a lot of questions. We joked that that’s what we do all day.

    Development projects happen because of teams of very smart people all working together toward a common goal. It’s a beautiful thing. And as a developer, there are certain expertises and competencies that you should have.

    But for the most part, we usually sit in rooms as the least qualified person. We are not structural engineers. We are not geotechnical engineers. We are not architects (though I sometimes pose as a fake one). We are not planners. And we are not façade specialists, among many other things.

    But we are the ones taking on most of the financial risk and trying to bring everything together. And what that means is that you end up asking a lot of questions. You collect information, you try and consider what could go wrong, you lean on past experiences, and then you make a decision — often without perfect information or 100% certainty.

    This is how projects move forward. You have to rely on others and you have to make decisions. Because not making a decision is even worse. It burns time, which is why too many cooks in the kitchen can be the kiss of death for development projects.

    I’m sure the same thing can be said for many other things in life.

  • Workplace occupancy-sensor company raises $125 million funding round

    Density, which is a company that provides occupancy-tracking sensors, announced this week that it has just completed a $125 million funding round at a ~$1 billion valuation. This is their Series D. Official announcements, here and here.

    On a practical level, the company provides workplace space analytics. They offer sensors that allow companies to anonymously measure how people are using their offices.

    How long people are at their desks for (possibly weird), which conference rooms are most used, where people socialize, and so on. With the idea being that if you measure it, you can then optimize it. It’s about how to best use your real estate.

    But their overarching mission is “to measure and improve out footprint on the world.” Their ambitions seem to go beyond just office space. It’s about how we occupy our cities, and using analytics to more efficiently design and build them going forward. And that’s pretty interesting.

    I’m not intimately familiar with the company, but I thought I would share the news with all of you in case you’d also like to check them out.

  • The great reopening: Planet Fitness vs. Peloton

    I came across this chart in Charlie Bilello’s latest newsletter. It was under the heading “the great reopening in 2 charts.” The other chart was live nation (so concerts) vs. zoom. Both are showing returns over the last year. And both are showing a similar divergence between in-person and online activities.

    Now, I’m not a Peloton guy.

    But I know many people who swear (or swore) by them. Maybe it’s because I’ve never been a class guy. I prefer to self direct myself at the gym and I like doing lots of different things. So I have a hard time believing that connected at-home gym equipment can completely supplant traditional gyms. There’s also a social aspect to in-person workouts that I think a lot of people value. I personally find it more motivating to be working out around others.

    But this wasn’t the narrative last year. We were all going to move to the country, zoom into our meetings, and then switch to another sitting device and another screen so that we could connect with our trainers. For me, this chart is yet another reminder that 1) cities are resilient and 2) there are always opportunities in the midst of short-term market dislocations.

  • Apartment rents in San Francisco have yet to fully recover

    On last week’s earnings call, apartment landlord Equity Residential mentioned that the two US markets most impacted by a delayed return to office appear to be San Francisco and Seattle. They went on to say that San Francisco is the only market in which they operate where rents have not fully recovered to pre-pandemic levels.

    According to Bloomberg (which is relying on employee swipe-card data), office utilization in the San Francisco area is sitting at around 25% as of October 20, 2021. This is compared to a national average of around 37%. The obvious rationale here is that large tech companies have delayed their return to office and/or been more aggressive in adopting remote/hybrid work.

    Looking at these numbers, it is clear that as someone who has been going into the office every day since the start of summer, I am currently in the minority.