The pride before the fall

Designed by Argentine-American architect César Pelli, the Petronas Twin Towers, which was started in 1991, was completed in 1998 and became the tallest building in the world on the date of completion. 1998 was also the year of turmoil for Malaysia, both financially as well as politically. Are tall buildings jinxed or is it merely a case of the pride before the fall?


Raja Petra Kamarudin

The Skyscraper Index is a concept put forward in January 1999 by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, which showed that the world’s tallest buildings have risen on the eve of economic downturns.

Business cycles and skyscraper construction correlate in such a way that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for recession. The buildings may actually be completed after the onset of the recession or later, when another business cycle pulls the economy up, or even cancelled.

Unlike earlier instances of similar reasoning (“height is a barometer of boom”), Lawrence used skyscraper projects as a predictor of economic crisis, not boom.

Lawrence started his paper as a joke (emphasized by a title referencing a comedy show) and based his “index” on mere comparison of historical data, primarily from the United States experience. He dismissed overall construction and investment statistics, focusing only on record-breaking projects.

The first notable example was the Panic of 1907. Two record-breaking skyscrapers, the Singer Building and Metropolitan Life Insurance Company Tower, were launched in New York before the panic and completed in 1908 and 1909, respectively. Met Life remained the world’s tallest building until 1913.

Another string of super-tall towers – 40 Wall Street, Chrysler Building, Empire State Building – was launched shortly before to the Wall Street Crash of 1929. The next record holders, World Trade Center towers and Sears Tower, opened up in 1973, during the 1973–1974 stock market crash and the 1973 oil crisis.

The last example available to Lawrence, Petronas Twin Towers, opened up in the wake of the 1997 Asian Financial Crisis and held the world height record for five years. Lawrence linked the phenomenon to overinvestment, speculation and monetary expansion but did not elaborate these underlying issues.

The concept was revived in 2005, when Fortune warily observed five media corporations investing in new skyscrapers on Manhattan (none of them, including the tallest New York Times Building, broke any records).

The intuitively simple concept, publicised by business press in 1999, has been cross-checked within the framework of the Austrian Business Cycle Theory, itself borrowing on Richard Cantillon’s eighteenth-century theories. Thornton (2005) listed three Cantillon effects that make skyscraper index valid.

First, a decline in interest rates at the onset of a boom drives land prices. Second, a decline in interest rates allows increase in average size of a firm, creating demand for larger office spaces. Third, low interest rates provide investment to construction technologies that enable developers to break earlier records. All three factors peak at the end of growth period.

Critics dismissed the skyscraper index as an unreliable tool: the post-World War I recession, recession of 1937 and the early 1980s recession were not marked by any record-breaking projects. Construction of Woolworth Building (world height record 1913–1930) was marked by a local overbuilding crisis in New York City in 1913–1915 concurrent with a record construction boom in Chicago. Thornton argues that completion of Woolworth Building was followed by a third-worst-ever quarterly decline in gross domestic product, thus it should not be considered an exception from the rule (as Lawrence himself did).

Cyclical patterns in real estate have been thoroughly studied before Lawrence, notably by Homer Hoyt in 1930s. A 1995 analysis of New York and Chicago experience by Carol Willis estimated that historically, two-thirds to three-quarters of skyscrapers were conceived for rent alone; corporate “edifices” imposing their owners brand name (including most of historical record-holders) were a minority, and they too leased space to tenants. Speculative real estate markets cycle between two different behavior patterns.

In “normal” times when value of resources is predictable, performance of a building project can be estimated reliably through well-tested formulae. In boom times, rational pricing gives way to irrational buyers’ behavior; buyers bet on ever-increasing demand and rents and are willing to pay more than they would normally. Willis said that “height is a barometer of boom”, “the tallest building generally appear before the end of a boom, their height driven up by the speculative fever that affects both developers and lenders”, citing cyclically inflated land values as the principal factor for increases in building height, but did not elevate this fact to become an “index”.

A related concept, Skyscraper Indicator, was popularised by Ralph Nelson Elliott in 1930s.

In some ways this appears to be an elaboration of C Northcote Parkinson’s theory that only organizations in decline have sleek, well-planned buildings. His favourite example was, not a skyscraper, but the city of New Delhi (particularly the area now referred to as Lutyen’s Delhi) – built shortly before India became independent of the British builders.


A recent update, that has a good potential of being the latest addition to this list is the Burj Dubai. Interestingly, in October 2009, Emaar, the construction company that is constructing Burj Dubai announced that it had completed the exterior of the building and within two months, the Dubai government came close to defaulting on its loans.

Lifted from Wikipedia