• How downtown vacancy rates, warehouse development, and migration away from cities affect the real estate industry
• What Adam expects to see when things go back to “normal”
• What Adam has to say about big picture stuff like the Canadian economy and the impact of inflation on the real estate market, labour market, unemployment rates, and innovation in Canada

Ian Ash: One of the reasons why I reached out to you is not only because of what you do currently, but also your strong economic background. You’re previously a senior quantitative economist for the Ontario Ministry of Infrastructure, so we can have a bit of a broader conversation not just about real estate, but also what the economic impacts on real estate are and how real estate is reacting. Inflation is a big concern; we’ve got big impacts due to COVID, obviously, in the way that people are working and where they’re working. So just in general terms, what are you seeing right now?

Adam: Let me start at the end – the demographic shifts. You know, you hear about people leaving cities, there’s an urban exodus. I think that is happening.

The data shows that was happening. I was just looking at something that said last quarter was a 50 year high of people moving to Nova Scotia. This is an area that’s been losing population for years for various reasons that booms in other parts of the country either decline the fisheries aging population. And now we’re seeing this kind of wholesale reversal where people are just taking that remote work on the road. They’re relocating and they’re going to figure out the details down the road. So housing is a whole other discussion, but we really are seeing that the whole province kind of being Toronto wise people cash out of their house.

I was reading something that said Hamilton is now on the list of most overpriced markets ahead of Silicon Valley. So when Hamilton’s ahead of Silicon Valley, I think, you know, things are a little bit upside down and it’s spilling, you know, way beyond the Toronto metro area all over the country.

But I think people are more familiar with the housing story and everything that’s going on there in our world where houses have become just sort of absolute gold rush. Vancouver, Toronto are some of the tightest markets in the world for industrial real estate, and the pandemic has just turbocharged this in terms of Amazon, Costco, Walmart doubling down on e-commerce, home delivery. People who maybe weren’t too familiar with e-commerce before the pandemic has kind of opened the door to, “Oh, I guess, getting my groceries delivered isn’t very complicated. You just go on the app and it’s there the next day”.

So warehouses… I always feel like they’re a little hidden. You know, people are not aware of them the way they’re aware of downtown buildings or 50 story hotels or anything. But there’s really a lot of innovation going on in warehouses. For a long time, it was just about making them bigger, bigger, bigger, higher ceilings, more truck bays. Now we’re starting to see there’s so little room. People are having to get creative. We’re seeing multilevel warehouses, which never existed before, but they’re starting to be actually like stacked warehouses, and there’s a circular ramp for the truck drivers up to the top. 

I was in Vancouver and there’s now even mixed use. There’s warehouses on the bottom and condos on top because the land is just so scarce and these are some pretty new concepts. And you know, it’s kind of interesting to see there. Just when we get below 1% vacancy rate where we are in Vancouver, Toronto, people need to get creative for office. I think this story has been pretty well covered. 

Obviously, vacancy is way up since COVID, although what I like to remind people is these are insane levels, you know, downtown Toronto offices are still less than 10% vacant. It’s not now when I say vacant, I mean, leased. I mean, obviously there aren’t a lot of people there right now, but the spaces mostly lease tenants have long term leases in commercial, you know, for your apartment, it’s a one year lease and then once a month, that’s not the way it works in commercial. It’s a ten year lease. 

Find the rest of the episode here.

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