January 19, 2012

Skyscrapers harbingers of economic doom?

Construction Corner | Korky Koroluk

The world economy continues to wobble along, with the news poor in Europe, middling in the United States and fair here at home. If you want news of robust economic performance, you have to go to China or India, both of which appear to be booming.

Or not.

Barclays Capital, the big British investment banker, keeps track of how the world’s economies are doing, publishing a variety of reports during the year. The latest, the Skyscraper Index, has been published annually since 1999, and the latest report, published late last year, shows some cause for concern. There is, say the bank’s analysts, an “unhealthy correlation” between the building of skyscrapers and subsequent financial crashes.

It cites a number of examples. The Empire State Building, in New York City, was built as the Great Depression was underway. The Burj Khalifa, presently the tallest building in the world, was built in Dubai just as the emirate almost went broke. Funding from a friendly nearby emirate was needed to complete the project.

The world’s first skyscraper, the Equitable Life building in New York City, was finished in 1873, and coincided with a five-year recession. It was demolished in 1912.

Chicago’s Willis Tower (known at first as the Sears Tower) coincided with the oil shock of the early 1970s. The Petronas Towers in Malaysia coincided with the 1997 Asian financial crisis.

China is the biggest builder of skyscrapers, although India and countries in the Middle East are also building a lot of them.

Barclays’ analysts say that often the world’s tallest buildings are simply representative of a broader skyscraper building boom, and often “reflect a widespread misallocation of capital, and an impending economic correction.” That could be a warning for China, India and the Middle East, which together are building by far the greatest share of skyscrapers. The Barclay’s report isn’t the only warning. J. P. Morgan Co., the American-based international financial giant, says the Chinese property market could drop by as much as 20 per cent in the country’s major cities within the next 12 to 18 months.

So there is gloom on the horizon, carrying the threat that the deficit problems besetting Europe and North America, could turn into a global problem. That, however, isn’t preventing the Chinese construction industry from doing some incredible things.

Just recently, the Broad Corporation, one of China’s biggest builders, built a 30-storey hotel prototype, using prefabricated elements, in just 360 hours. That’s 15 days.

The building is designed to withstand earthquakes measuring nine on the Richter scale. It has all the latest energy-saving technologies built into it, leading Broad to claim that it’s five times more energy-efficient than a conventional building. All the windows are quadruple glazed, for example. Indoor air quality is said to be superb, many times cleaner than one would usually expect.

The company once built a 15-storey building in a week, so this new structure raises the bar.

What intrigues me is that the building is being called a prototype, which implies that there will be more to come.

Of course, China has a history of inadequate building codes, and non-compliance with those codes, so we’ll just have to wait to see how this new hotel performs. It could be a forerunner of systems designed to deliver projects faster and cheaper. It could also become lost in the rubble if the Chinese economy crumbles. In Beijing, prices for new apartments have been slashed by as much as a third in some projects, and even at that, sales have plummeted. The market for new office space is flat.

And, now that Barclays has found a correlation between tall buildings and financial crashes, and brought it to public attention, investors could be looking hard at proposals for tall buildings in North America, as well.

Korky Koroluk is an Ottawa-based freelance writer. Send comments to editor@dailycommercialnews.com

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