New Skyscrapers Wherever one Looks
Readers may recall our recent discussion of the construction of the Jeddah Tower (see “Soaring to Bankruptcy” for details). This skyscraper is a typical symptom of an artificial boom that has moved past its due date, so to speak. The idea behind the skyscraper index is that in light of the immensity of projects that involve the construction of the tallest building in the world (or one of the tallest), they are only realized once the notion that boom conditions will continue forever has become firmly ingrained. By the time this happens, the boom is usually quite close to giving way to a bust.
Central Park Tower , a.k.a. the Nordstrom Tower, which is going to be finished in 2019. At a height of 547 meters (1,795 ft.) it will be the tallest building in the United States, as well as in the entire western hemisphere
Image credit: Extell
It is quite costly and time-intensive to build such an enormous structure. One needs to keep in mind that the effort involves much more than just the construction phase. Planning, permitting, solving technical and logistical challenges, organizing the necessary funding, etc., all have to be considered as well. The long term nature of such projects also means that they are far more likely to be tackled when interest rates are low – and especially when they are too low, i.e., suppressed below the natural rate by central bank intervention. As we have pointed out in the article on Jeddah, from an analytical perspective real estate can be viewed as akin to capital goods.
In recent years we have noticed that a string of very tall buildings has been erected all over the world. Many of them were even briefly considered the “tallest” at the time they were conceived. There was a noteworthy concentration of such projects in China and in oil-producing nations.
Even Iraq (!) is reportedly planning to build the tallest building in the world in Basra – the 1,152 meter (3,778 ft.) tall “Bride of the Gulf”. This one would even put the Jeddah Tower in the shade. We strongly suspect that the plans were made back when oil was still trading in triple digits. We also suspect that the “Bride” will remain stuck in the conceptual stage for the time being.
The planned “Bride of the Gulf” building in Basra. At a height of 1,152 meters, it would outdistance even the Jeddah Tower.
Image credit: AMBS
Frankly, we are actually a bit puzzled why anyone would want to erect such an extremely tall building in the desert of all places. It’s not as if one urgently neeeded to save space. We tentatively conclude that they just want to impress everyone.
Bubble Indicator Flashes Global Warning Sign
Recently we have come across news that seem to confirm that the global central bank printathon in the wake of the GFC has indeed created a major bubble on a global scale. This implies that the denouement of the bubble will likely be globally synchronized and may accordingly turn out to be quite intense.
We were very surprised to learn that the number of buildings classified as “super-tall skyscrapers” (with a height of 300 meters or more) has in fact doubled since 2010. It took 80 years to build the first 50 super-tall skyscrapers, and just five years to build the next 50! This is an astonishing datum – an awesome monument to bubble excess. Here is a chart from Bloomberg illustrating the historical trend:
“The majority of what the Council on Tall Buildings and Urban Habitat calls “supertalls” sprung up in Asia and the Middle East, mirroring construction trends and economic booms. While the first 50 supertalls took 80 years to complete — between 1930 and 2010 — their total number doubled to 100 in just five years, according to the CTBUH. The next frontier in the race for the skies? The “mega-tall,” or taller than 600 meters. There are currently only three completed mega-tall buildings in the world, a number set to more than double in the coming years as four more — including the Jeddah Tower in Saudi Arabia and Kuala Lumpur’s KL118 Tower — are completed.
We should add to this that two of the mega-tall buildings are under construction in China. The Suzhou Zhongnan Center will be China’s tallest building at 729 meters (under construction since 2014) and the Wuhan Greenland Center (to be finished next year) at 636 meters is definitely no slouch either. The latter building has a unique curved design and is going to be entirely covered in glass, which is supposed to give it “a unique feeling of luxury”.
As is often the case, it appears as though many of these “mega-tall” buildings will actually be finished once the bust is well underway (the Empire State building is a famous example of a record tall skyscraper that was started at the height of a major boom and was only finished at the very depths of a depression). We also find it amusing that there is actually such a thing as a “Council on Tall Buildings”.
Based on the skyscraper index, we appear to have experienced one of the biggest booms ever – as uneven as it has been, with real economic growth generally not much to write home about in most parts of the world. The same can obviously not be said of asset prices, which have benefited greatly from the flood of money unleashed by central banks in recent years.
Given the fact that there is a sound theoretical argument to be made for the signaling quality of the skyscraper index, as well as plenty of corroboration from empirical data, the above discussed development is quite ominous.
Maybe we should quickly build a few well-stocked and easily defensible cellars – just in case.
An upgrade to “severe” is probably indicated.
Cartoon by Bennett
Chart by: Bloomberg