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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Tag: jimmy the greek reopening index

  • What might happen in 2024

    Yesterday we looked in the rear-view mirror. Today we’re looking forward:

    • 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!

  • What happened in 2022 and how I did on my predictions

    It has become tradition around here that at the end of each year I write down my predictions for the following one. And in 2022, I did that here. The overarching point of writing something like this down publicly is not necessarily to be right (because you can do that through obvious predictions). The point is to dedicate time to thinking (which is oftentimes hard to do throughout the year), to search for non-obvious things, and to generally be okay with being wrong. So I plan to do this again in the coming weeks for 2023.

    But first, let’s see how I did with my 2022 predictions:

    1. COVID: I argued that 2022 would be the year that the pandemic becomes endemic and it reaches a point where it no longer factors into decision making in the same way that it has since 2020. Some of you may disagree whether this is a good thing, but I would still say that this happened, at least in this part of the world. I started the year in lockdown here in Toronto and I ended the year having taken multiple overseas trips where testing was no longer required. (Right)
    2. Return to office: I was kind of close. I thought that the majority of people would be back in their offices by September. I didn’t say that hybrid/flex work was going to disappear, but that we would see a great return. That did happen, according to my super scientific Jimmy the Greek Reopening Index. But if you look at the latest swipe card data for the 10 largest US cities, average occupancy is hovering just below 50%, which is not a majority. (Wrong)
    3. Recreational/fringe housing: I felt very strongly that we would see a pullback in residential real estate this year, specifically recreational properties and properties in tertiary markets. This 100% happened, but I’ll be honest in that I was not thinking about the interest rate hikes that we saw. I just saw it as a pandemic bubble. I also thought that apartment rents would do very well and surpass pre-pandemic levels. This happened in many markets. (Right)
    4. Return of travel: Yup. (Right, but maybe too obvious?)
    5. Intensification of single-family home neighborhoods: This continued to be an important topic in 2022. Did we see some a tipping point-like moment, like I had predicted? I think it depends on the market, but here in Toronto we did see things like Bill 23, as well as additional efforts on the part of Mayor John Tory. (Right)
    6. Autonomous vehicles: Progress was made this year. You can now hail an autonomous taxi in places like San Francisco. But I also thought that this would be a fantastic year for Uber as the world reopened, and that they’d finally become profitable. As of Q3 of this year, that had not happened. (Wrong)
    7. Public transit and micromobility: I got the public transit ridership piece correct. I assumed that ridership levels would remain depressed. Perhaps an obvious one. But I also figured that e-scooters would be one of the main beneficiaries. While it is true that e-scooters remain very popular, particularly with French people, we did see ridership decline in the US, as the availability of cheap capital waned. (Mostly right)
    8. NFTs and augmented reality: There’s a lot happening in this digital world and I continue to be incredibly bullish. But we are certainly in a “crypto winter.” I also thought that Apple would announce something big related to augmented reality this year, but supposedly that has been pushed to next year. (Wrong)
    9. Climate change and carbon prices: I thought that the price of carbon on the EU’s Emissions Trading System would surge this year. It did not. Right now it’s looking like it’ll end up being fairly flat for the year. Of course, I also had no idea that Russia would do terrible terrible things to Ukraine, which has had dramatic impact on energy markets. (Wrong)
    10. More crypto (Ethereum, Bitcoin, and Solana): Well, I got this last one really wrong. ETH is down ~70% over the last year relative to the US dollar. I was not predicting a “crypto winter.” And I did not know that Sam Bankman-Fried was operating a weird cult-like ponzi scheme out of a penthouse in the Bahamas. None of this changes my views on crypto, but I was still wrong in 2022. (Wrong)

    Looks like I’m somewhere around 5/10.

    Stay tuned for my predictions for 2023. In the meantime, if any of you have predictions of your own, I would love to hear from you in the comment section below or on Twitter.

  • Transit data tells us that people don’t like Mondays

    My unscientific Jimmy the Greek Reopening Index has led me to believe that flexible hours have resulted in more people working from home on both Mondays and Fridays. The middle of the week seems to when demand peaks for delicious lunchtime souvlaki.

    But that may only be half right. According to some recent transit data from New York City, which looked at weekday subway ridership between October 2021 and March 2022, it seems to only be Mondays where people really prefer to stay at home:

    What you are seeing here is subway ridership per day (with any holidays removed from the data set). Mondays, on average, saw 2,815,166 rides per day, whereas the average for non-Mondays was 3,026,371 per day. So over this particular 6 month period, Monday ridership was about 7% lower.

    The probable takeaway: People seem to like to ease into the week.

  • Office utilization update

    Some of you might remember my Jimmy the Greek Reopening Index. It has become my crude way of measuring office utilization in Toronto’s CBD. Based on this I can tell you that utilization is firmly up this week. Most lunch spots in Toronto’s PATH are back to having lines and the people working at these fine establishments are saying things like “finally” and “the people are back.” All of this is, of course, anecdotal. And I am not saying that we are back to pre-COVID levels. But there was a clear and meaningful uptick this week, which happens to coincide with the lifting of a number of COVID restrictions.

    Now let’s consider some actual numbers. I don’t know what they are for Toronto’s CBD (if you do, please share them in the comments below), but Kastle Systems has what seems like accurate “office swipe card” data for the 10 largest US cities. What this data tells us as of the end of February 2022 is that there has been a “return to normal, but not to the office.” Compared to 2019, NBA games are at 93.3%, movie theater ticket sales are at 89.4%, TSA checkpoints are at 87.8%, OpenTable reservations are at 87%, and yet office utilization sits on average at 36.8%.

    The “best” performing city is Austin with an average utilization of 53.4% as of February 23. And the “worst” performing city is San Francisco with an average utilization of 26.1% as of the same date. This makes intuitive sense given that tech has been pretty much leading the charge when it comes to remote and flexible work. Still, things are heading up and to the right. And as I argued at the beginning of this year with my annual predictions, I continue to believe that the majority of office workers will return at some point. Offices aren’t going away. And I think they’re going to remain the dominant place of work.

    Chart: Bloomberg