In the latest iteration of an annual report by researchers at Barclays Capital last week, it has been suggested that historically, an ‘unhealthy correlation’ has tended to exist between the construction of the worlds ‘tallest’ skyscrapers and an approaching financial crash.
In an interview with the BBC, the author of the report, Andrew Lawrence spoke of the precedents for this trend as an indicator of imminent economic collapse, and how they may serve as an early warning signal to economists today. The Skyscraper Index as the yearly report is known, reflects among others, on previous examples such as the construction of the Empire State Building (dubbed the ‘Empty State Building’ atthe time) in the 1930’s during the Great Depression and the Petronas Towers, the world’s then tallest building in Kuala Lumpur, the completion of which in 1997 coincided with the Asian financial crisis.
Effectively the index suggests that high-rise, prestige development is the result of excess capital chasing too few genuine investment opportunities.
Having recently returned from a business-trip to Shanghai with a major property company where I witnessed first-hand the frenetic pace of development taking place, it’s easy to believe the news in the report that China is currently responsible for building 53% of major skyscrapers currently under construction around the world. This is a fact reflected in the expansion in credit the country experienced in 08-09 and a likely indicator of the talked about property bubble many believe is soon to burst.
More than half of the 124 mega-towers currently under construction around the world are being built in China.
The correlation between two seemingly related events does not however, confirm an undeniable relationship and could purely be borne out of unhappy coincidence. Besides which, there are clearly many examples throughout recent history of such buildings being constructed in economically favourable times.
One need not look any further for example than to the excessive yet impressive Stalinist-Gothic architecture present in the Soviet Union of the late 1940’s, reminiscent of the New York skyline of the early 20th century, and which whilst representing totalitarian dominance, did not coincide with any economic crisis or act as a demonstration of capitalist exhuberance preluding a fall.
Indeed, when one looks at the recent picture, the argument of the ‘biggest and tallest’ indicating a crash doesnt always hold water either. This is apparent when you consider more recent market-driven examples of skyscraper construction, such as that of 101 Taipei in Taiwan, which for 6 years following its completion in 2004 was the tallest building in the world – well before the economic collapse of recent years.
The truth of course probably lies somewhere in the middle.
There is no doubt that the skyscraper in its current form (look no further than the Burj Khalifa in Dubai) has, and will continue to be largely an overblown symbol of status and prestige.
Although many people see the recent spate of high-rise construction as a demonstration of hubris, it is worth remembering the cyclical nature of the economy in which all development takes place. Bust follows boom as sure as night follows day, and given the timeframe in which development of such buildings takes place (often 5-10 years), it is not unusual for the process to get underway during the good times, only to complete when the market is toast.
I do however feel that the Index will prove to be right on the money in its predictions for the explosion of development in China. With so much in this market about prestige and ego, little exists in regards to properly calculated rental yields as the rate (and height) of construction continues to race ever upwards.
The Built Environment Review 