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.
One of the things that I have noticed while walking around Lyon is that there seems to be a lot of office space right at street level.
And most of it does not seem to have a consumer-facing element where people just walk in off the street.
There’s something nice about seeing beautiful spaces and people sitting at their desks (I walked past people sitting on exercise balls). It’s another way of animating the street.
Personally, I’d love to have an office right at ground level, similar to the above. But it’s not usually where our minds immediately go. We usually default to retail. Or at least I do.
So I’m going to work to remove this blind spot from my mental models. Office right on the street can clearly work really work.
This skinny 8-story building caught my eye in the Place des Terreaux in Lyon. I think a lot about these sort of small infill buildings because it is generally not how we build, today, in Toronto. But it’s a workhorse of a “fabric building”, and I can think of many streets that would be made better if only we encouraged this kind of built form. Truthfully, it’s probably most streets.
Let’s resume looking at sidewalks and public spaces.
If you look in the City of Toronto’s Official Plan for the stretch of Dundas Street West that runs between Dupont Street and Bloor Street West, you’ll find a map that looks like this:
Red signifies “Mixed Use.” And so if you were to just look at this map, you might naturally assume that, in the real world, this is a continuous main street that connects The Junction neighborhood down to Bloor. But that’s not actually the case. Instead, it looks like this:
Because of the rail corridor on the east side, it is a single-sided street. And generally speaking, these don’t make for the best retail streets. But it also has narrow sidewalks and a compromised public realm. If you go back to the map I shared yesterday, you get this:
I don’t think 30cm is entirely accurate here, but that’s beside the point. What matters is that this is just one of many examples in the city of a discontinuous public realm. (Here’s another, undignified example, from Parkside Drive.)
Over the years, there have been a number of design concepts proposed. Below is one by Brown + Storey Architects that was done I don’t know how many years ago. Their proposal widened the sidewalks along this stretch, and added bike lanes. They also proposed a roundabout at the intersection of Dundas, Dupont, and Annette, which is another matter that needs addressing.
But none of this has been implemented and I don’t know of any plans to do it. When we were going through the rezoning process for Junction House, we were made aware of some transportation studies that had been done for the above intersection. But that’s about it. There wasn’t an actual ETA.
However, now that my commute consists of walking up and down this part of Dundas, I’ve been thinking more about how it could be improved.
I think there’s no question that the sidewalks need to be widened. It would also be helpful if there were crosswalks to facilitate getting off the south end of this exotic island:
But equally important, I think that something should be done about the single-sided nature of the street. Given that there’s limited width, my mind immediately goes to shipping containers, or something similar, to start activating the east side of the street.
This has already been done further south on Dundas (east of Bathurst):
And it could work here too. Already there’s a Blondie’s Pizza anchoring the south end of this stretch (really fantastic pizza, by the way):
But I would love to hear your ideas, as I’m currently in the market. I also don’t think that you necessarily need to be from Toronto in order to comment. Great streets are great streets. So if it were up to you, what would you change, if anything, about this part of Dundas Street West? Let me know in the comment section below.
Dave LeBlanc recently published an article in the Globe and Mail called, “How wide is your sidewalk?” And in it, he links to this sidewalk map of Toronto (pictured above), which uses open data from the city to plot sidewalk widths.
It was originally intended as a map of where social distancing is possible (oh, how far we’ve come), but today it serves as a really interesting way of looking at the city. What it makes clear to me is that we could use a lot more sidewalk, and that too many areas of the city have a discontinuous public realm.
Sometimes there’s very little that can be done until an adjacent property gets redeveloped. And when this does happen, the city will demand pedestrian widenings. But in other cases, there are solutions that could be implemented today, without private participation.
So I sure hope that someone is looking at a map like this and trying to come up with holistic solutions for making Toronto a more walkable and more pedestrian-friendly city.
Note: Sometimes a narrow sidewalk does not necessarily equal an inhospitable street. I mean, look at this example.
The market consensus right now is that this cycle of interest rate increases has come to an end, and that we should see rates start to come down next year. Having confidence that rates won’t go any higher in the near future is what markets need in order to start making more decisions. So this is, of course, positive. At the same time, I don’t think anyone should expect a return to ultra-low rates. Rates today are still low when viewed historically.
Lower rates are good for levered assets such as real estate, but I don’t think that our industry has fully felt and processed the impacts of higher rates. Unfortunately, I think that things will get worse (in 2024) before they get better (maybe toward the end of 2024 or perhaps in 2025). This is when a “risk-on” approach will return in commercial real estate. A year ago today, I thought 2023 would be the year for this, but as I said yesterday, I was overly optimistic in terms of my timing.
On the residential resale side, I think we will see greater optimism sooner, certainly for the most in-demand cities and areas. There is pent up demand waiting on the sidelines and, once we can get past the current bid-ask spreads and deadlock, I believe we’ll return to a more balanced market in 2024. To be clear, I’m not expecting bidding wars and the like. And because of our housing affordability crisis, I also think the Bank of Canada will be more resistant to lowering rates compared to other central banks. This will help the Canadian dollar.
If you’re a buyer of real estate, I generally believe that 2024 will turn out to be a pivotal year for you. Roughly speaking, you win acquisitions in one of two ways: either (1) you pay the most or (2) you believe in something that most other people in the market don’t. This second approach is harder to achieve in bull markets. But in slower markets, the door is open and history has taught us that it can be the foundation in which great fortunes are made.
As I mentioned yesterday, I agree with the prognostications that hard costs will soften further next year (perhaps even more than 5% on average). Obviously every market is different. But here in Toronto, I just don’t see us returning to the level of construction starts that we have seen over the last number of years.
Since 2021, I have used my hyper scientific Jimmy the Greek Reopening Index to keep tabs on office utilization and the overall return to office. And based on this, 2023 was a positive year. Initially, souvlaki consumption appeared dramatically lower on days like Monday. But I noticed discernible increases as the year went on. However, if you look at actual data, such as what we have from swipe cards, the great return to office seems to have stalled out at around 50%. I don’t think this will hold, though. I continue to believe that of the people who work in offices, most will spend > 50% of each week there. And we will see that in 2024.
2023 was the year of AI. But Fred Wilson makes an excellent point, here. AI is 40+ years in the making. Last year only became the year of AI because a consumer-facing app — ChatGPT — was revealed that captured everyone’s attention. Crypto will eventually have this moment, but it will likely need to marinate a bit longer. Instead, I think 2024 will be the year of augmented reality (AR) and a further blurring of our offline and online worlds. Think digital art, fashion, and other collectibles (such as NFTs).
Right now, autonomous vehicles feel like they’re in the trough of disillusionment (within the hype cycle). There were moments last year where it felt like we were finally moving beyond this phase. But then some very suboptimal things happened. I think AVs are our reality in the next 5+ years, which means that for next year we likely want to be focused on the inputs: vision/LIDAR, battery tech, etc.
Zooming out, we should be thinking about the above two trends in the context of a broader shift toward greater automation. I think it will feel more insidious than immediate (certainly in 2024), but the longer-term impacts are going to be profound for our society. The so-called gig economy is likely to be impacted first. Eventually the overall economy will create new jobs, but we are still going to need to manage this transition toward more automation.
TikTok Shop is where to look for the future of shopping. I think the platform will continue to see strong adoption and ultimately prove to be a dominant e-commerce platform throughout 2024. Amazon, Meta, and others will see this, and try their best to catch up and copy it.
At the time of writing this post, the total crypto market capitalization is about $1.74 trillion. This is down from nearly $3 trillion at the peak of the market in 2021. The recent gains suggest that the so-called “crypto winter” might be over, and so combined with lower interest rates and more real-world use cases, I think that 2024 will be another strong year for crypto. Total crypto market cap at the end of the year will exceed its 2021 peak.
And there you have it. My current thoughts for this upcoming year. I should note that I’m not an economist, analyst, or an expert on souvlaki demand for that matter. But I enjoy writing this post as an annual discipline. It forces me to think critically about the topics that interest me. And in the paraphrased words of Howard Lindzon, it gives me an archive that I can go back to and either cringe at or think to myself, “hey, I could have been a somebody!”
And with that, a big thanks to everyone who has read this daily blog over the last year. This year marked its 10th anniversary. I wish you much success and happiness in 2024. Happy new year!
As per tradition around here, I like to bookend the new year with two posts: a post that revisits my random predictions for the year and a post that talks about what might happen in the year to follow. Today’s post is the former. So let’s see how I did:
I thought the interest rate hikes would come to an end in Q1-2023. But that didn’t happen until the summer. I also thought this would lead to a mild recession in Canada. Technically, we are not actually in one, but according to some, we kind of are.
I thought the real estate sector would start seeing some distress in the first half of the year, and that a new equilibrium would be found in the second half. This proved to be overly optimistic in terms of timing. A lot ended up being on pause for the entire year, and I now think that my forecast was at least a year too early. The sea change is still underway.
Given the overall slowdown in real estate, I felt that construction costs had to see some softening. This did, in fact, happen with some of the “earlier trades”, such as shoring and excavation, and we did see some specific trade pricing, such as concrete formwork, come down by as much as 30%. The smart cost consultants we work with now expect to see overall hard costs come down by a further 5-6% next year in Toronto. This makes sense given construction starts are way down.
With me expecting the interest rate increases to stop in Q1, I thought that pre-construction condominium sales would return in a meaningful way by the spring. While we did see some buoyancy around that time, it was short lived. Sales remained nearly shutoff for the entire year, but for maybe a handful of projects. The more successful projects tended to be outside of the Toronto core and at lower price points.
With respect to home prices in more tertiary/fringe markets, my sense then, as it is now, was that these prices would remain below the peaks for many years. In addition to the upward momentum created by low rates, my view was/is that some of this pricing was the result of a bet on urban decentralization. I don’t think that has played out as many expected it to, so that’s why I think it will be many years before the pricing we saw in early 2022 returns.
The momentum around “expanding housing options” in our low-rise neighborhoods is many years in the making. And a lot of progress was made in 2023. Here in Toronto, we adopted new multiplex policies that now allow fourplexes plus an accessory dwelling (so 5 homes in total) on an as-of-right basis. I continue to believe that this momentum is only going to grow. I also think we will see the arrival of more mixed-use opportunities.
I believed that, broadly speaking, urban transit ridership would remain below pre-pandemic levels for all of 2023. This proved to be the case for most US and Canadian cities. But things are improving. For Canada as a whole, it looks like we’ll see full recovery sometime in 2024 based on this trend line.
I thought 2023 was going to be the year I took my inaugural ride in an autonomous vehicle. Sadly, this didn’t happen. The sector as a whole also saw some setbacks. Hopefully I’ll get a chance next year.
I assumed that Apple would finally release its augmented reality device. And though they didn’t technically releaseVision Pro, they did announce it. So I guess that counts for something. I also thought that 2023 would be a big year for “phygital” goods. Maybe it was. Or maybe it was more of a building year. A lot of people are curious to see how Vision Pro does in 2024. It’s not set up for the mass market, just yet, but I think it will do exactly what it is supposed to once it’s out in the wild.
Finally, crypto. I know that a lot of you like to skip over these posts, but it is something that I feel strongly about. A year ago, though, I was pretty bearish on Solana. Boy was I wrong. Solana ended the year as the best performing major crypto asset — up 933% at the time of writing this. Oops! However, Ether is also +91%, and I continued to dollar-cost average in all throughout the year.
Next up: What will, or more accurately, what might happen in 2024.
Many years ago I was in a community meeting talking about a proposal we had to add retail uses adjacent to a park. Residential was the highest and best use, but we were excited by what retail could do for the project and area. We were imagining something like a Parisian cafe where everyone would sit facing outward toward the park.
Much to our surprise, the community was vehemently opposed. And when we eventually asked who had been to Europe and sat outside in a nice cafe, the response we generally got was, “yeah, we have, and it’s obviously nice there, when on vacation. But that’s Europe. It won’t work here and it’s not appropriate for the area.”
Hmm. This raises all sorts of interesting questions. But for today, let’s ask this one here: Why is it that some people choose to live in places that are so different than the ones they visit when on vacation?
Is it because we, as humans, want fundamentally different experiences when we travel? i.e. We want to escape from our current reality. “Oh look how novel this is.” In this case, I guess you could say that our markets are fairly efficient and people are getting the kind of lifestyles that they truly want, both at home and abroad.
Or, is it because, for a variety of reasons, we’ve created rules and obstacles that force certain built form outcomes? We think the other ways won’t work. I often find myself in this latter camp, meaning that when I travel, I at some point end up thinking: “This is a good idea. I want to both move here immediately, and steal this idea and bring it back to Toronto.”
As a follow-up to yesterday’s post about infill housing and overall urban densities, let’s look at some basic math.
The City of Toronto has an estimated population of 3,025,647 (as of June 2023) and a land area of 630 square meters. That means that its average population density is about 4,803 people per km2. Obviously this number will be higher in some locations, and lower in others. But overall, this is the average.
Now let’s consider how many people we could actually fit within the existing boundaries of the city (city proper not the metro area) if we were to simply match the average population densities of some other global cities around the world.
Again, what this chart is saying is that if we took the same physical area (Toronto’s 630 square meters) and just increased the population density to that of, say, Paris, we would then have a total population of over 13 million people and we’d be housing an additional 10,011,573 humans on the same footprint.
I am not suggesting that this is exactly what should be done. (Though, you all know how much I love Paris.) What I’m suggesting is that calling a place “full” isn’t exactly accurate. How would you even measure that? What someone is really saying is that they are content with the status quo in terms of built form and density.
What I was getting at is that there’s lots of available room within our existing boundaries for infill housing. We are nowhere near full, despite what some people will tell you. In fact, most areas are not dense enough to properly support modes of transport that aren’t the car.
Of course, there are a number of ways that one could be offended by a statement like this.
One, you could argue that more density would make the city unlivable. Two, you could get into the chicken-and-egg game of whether a more expansive transit system is needed before allowing more density. Three, you could say that we already have enough zoned and unbuilt housing supply — so why do we need more? And I’m sure that there are many others that I’m not mentioning here.
Density can be a counterintuitive feature for cities. It can actually make a place more livable by encouraging more amenities adjacent to where people live and work, and it can also reduce traffic congestion by empowering alternative forms of mobility. If the only reasonable way to get around is by car, then of course most people will drive.
We also need to avoid the chicken-and-egg mental trap when it comes to mobility infrastructure. Land use and transportation always work hand in hand and need to be thought of and executed on simultaneously.
Finally, the objection of already having lots of sites zoned for new housing is an enticing one. But zoned and delivered are two vastly different things. And the unfortunate reality is that there are a lot of zoned sites that won’t be able to develop in the short and medium terms because the market isn’t there. But that doesn’t mean that other housing typologies couldn’t be built.
At the same time, we need move away from “cruise ships of urbanity.” Broadly speaking, Paris — to cite just one of many examples– is at least and on average about 4x denser than Toronto. And somehow, people still like living and visiting there.
If you are the Los Angeles County Metropolitan Transportation Authority and you own excess land next to a transit line that you’ve just recently built, one possible option could be to give this land to a non-profit housing developer so that they can build some affordable housing. And this is exactly what was agreed to in 2007 with the Lorena Plaza site in the Boyle Heights neighborhood of LA. The proposal: 49 affordable units geared toward people making 50% of the AMI.
However, like all things in development, things do take time. And when building new 4-storey housing complexes, there is always the real possibility that you might face several years (or longer) of fierce opposition. In the case of Lorena Plaza, it apparently took the developers from 2013 to 2020 to reach a settlement with the local councilman and their immediate neighbor (a commercial plaza). In the end, this project is now expected to occupy next summer (2024), which brings the total project timeline to 17 years.
This is probably an extreme example and, thankfully, some of the rules have since been changed to help speed up projects like this one. Still, it is no wonder we can’t build enough new housing. (Los Angeles wants to build some 450,000 new homes by 2029.) Time isn’t free. And according to the WSJ, this relatively small project ended up costing US$34.2 million to build. That’s nearly US$700k per suite. A number that will buy you a lot of home in many cities across the US.
