When I was in grad school they used to always tell us that architects are a leading indicator for the development business. Because if architects are getting fewer jobs/billings, it means that at some point in the future there will be fewer construction starts and then fewer completions. And not surprisingly, that is what we are seeing happening right now. Below is the latest data from the AIA/Deltek Architecture Billings Index (via Bloomberg).
Billings, inquiries (an even earlier leading indicator for billings), and design contracts are down:
And it seems to be most pronounced in the West and the Northeast:
This is always something to watch if you want to try and forecast where hard costs might be going and what completions might look like in the next few years.
Building new buildings takes a really long time. It is not uncommon for development timelines to to span 5-10 years, and sometimes even longer. It is particularly frustrating when you see unnecessary roadblocks and delays throughout the process. But that's a topic for another post.
Perhaps one of the positives of these timelines is that they force you to think well into the future. Take for example electric vehicles. Most car manufacturers have already announced aggressive electrification targets for the year 2030.
What that means is that if you're starting a new project today, you have to assume that it will be completed into a world where many more people will be coming home and plugging in their car. Perhaps it will be the majority of people. So you probably need to plan for that.
Another way to think about development is that it is a leading indicator for what's coming. If we stick with the example of cars and parking, I think it's pretty clear that parking is becoming increasingly scarce in our biggest cities. The pressures are simply too great.
In all of our Toronto projects, we are currently building no more than about 0.4 parking spaces per suite. And there's pressure to bring this number down even further. There are lots of examples of zero parking. The biggest reason is costs, but we also know that big cities don't function well when everyone is driving around.
This is also not a new trend.
If you look at the multi-family buildings that Toronto completed in and around the 60s and 70s, many will have parking ratios in the range of 1-2 parking spaces per suite. This is totally untenable in today's environment (except for a small subset of the market) and I bet you that a lot of this parking is now sitting vacant.
Things change. Development can sometimes tell you what those changes might be.
Photo by Michael Fousert on Unsplash
I recently discovered and subscribed to Packy McCormick's "Not Boring" newsletter. So far it's quite good, and so here I am mentioning it to you all on the blog. In his latest newsletter, he makes the case for why Airbnb and Zillow -- the two largest residential real estate tech companies -- should merge. Naturally this new company would be called Zillbnb. You can read all about why he thinks this is a good idea over here, but I would like to point out one thing that I found interesting.
Packy makes the argument that "easiest-to-book, shortest duration reservations" are a leading indicator for changes in demand. In other words, platforms like Airbnb can start to tell you where people might want to live and platforms like Breather can start to tell you where people might want to work.
To support this argument he uses the example of his Airbnb rental outside of New York City. Sure, demand initially fell off a cliff at the beginning of lockdown, but then it started to surge as New Yorkers sought refuge outside of the city. And while I think that this particular change in demand will likely end up being short-term in nature, a similar trend is being reported around in the world. Did we hear it first on Airbnb?