How skyscrapers reflect on economic health

Steve Chiotakis Jan 11, 2012

Steve Chiotakis: Think you can predict which city will be hit by a big economic crisis? You might want to look up. A new report by Barclays Capital shows a correlation between building the world’s tallest building, and a local economy that will soon go in the tank.

Andrew Lawrence is the head of Asia retail estate research at Barclays Capital and he wrote the report. He’s with us now from Hong Kong. Hey Andrew.

Andrew Lawrence: Hi Steve.

Chiotakis: I thought skyscrapers indicated economic strength — what’s going on here?

Lawrence: What we’re seeing here is that skyscrapers really tend to indicate the expansion of economies — and probably the misallocation of capital. So if we go back in time, we find that when we see the world’s tallest building being built, it tends to correspond to an economic downturn.

Chiotakis: Give us some examples.

Lawrence: Certainly. We can go back as far as the late 1800’s, but perhaps a more familiar building to your listeners would be New York in the 1930s —

Chiotakis: Oh, when the Empire State Building was being built, right?

Lawrence: That’s correct, yup. And then, the 1970’s, with Chicago’s Sears Building. And more recently, 1997, Petronas Towers in Malaysia, which coincided with the Asian financial downturn. And then, in the last three or four years, we’ve had Dubai being built — which coinciding, effectively, with the current economic downtown.

Chiotakis: What does this say about commercial real estate then?

Lawrence: I think what it shows is that commercial real estate shows some relatively sporadic building — so there’s no clear cycle. There can be, sometimes, quite long periods between the building. But they do correspond with economic expansion and probably the misallocation of capital — particularly easy, cheap credit.

Chiotakis: You know, buildings — I mean I think of big buildings as sort of engineering marvels, if you will. Doesn’t that sort of dissuade us now from wanting to reach for the sky?

Lawrence: Engineering miracles, yes indeed — and probably the architecture of capitalism. I suspect that generally people are not going to stop reaching for the sky in some ways. It’s just a expression of economic achievement, and people will continue to want to build higher and higher, I suspect.

Chiotakis: Andrew Lawrence, who authored this report for Barclays Capital. Andrew, thank you so much.

Lawrence: It’s a pleasure, good to talk to you.

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