The Bigger They Come … ?

Do big buildings predict a bust?

That’s the idea behind the Skyscraper Index, which posits that when a country build’s the world’s tallest building, an economic crisis isn’t far away. Some people are worried that the building of Sky City in China predicts an upcoming economic and market collapse.

The first example of this idea comes from the beginning of the 20th century, with the Singer Building in New York, a 612-foot structure, whose completion came close on the heels of the Panic of ’07. The Chrysler and Empire State buildings were finished in 1930, just after the Crash of ’29. The World Trade Center and Sears Tower were built in 1973—right around the time of the Arab oil embargo. And so it goes, with the Petronas Towers in Malaysia and Khalifa Tower in Dubai.

It’s true that skyscrapers tend to be built at the tail-end of economic booms, as expensive land and cheap credit make concentrated office space economically attractive. Architectural and nationalistic hubris may also play a role. But the index has failed to predict many downturns—the post World War 1 recession, the early-‘80s recession, Japan’s crash—and several tallest buildings haven’t presaged a bust. The Taipei Financial Center is one.

A growing economy generates a need for tall buildings. Sometimes those buildings will be the tallest. When that growth slows, the building stops. There’s nothing magical about it.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-08-08T10:51:56+00:00 August 8th, 2013|Global Market Update|0 Comments

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