Burj Khalifa: Why tall towers are always too late
What better monument to financial folly than the tower opened in Dubai at the start of 2010?
The world’s tallest building was renamed Burj Khalifa bin Zayed in honour of the ruler of Abu Dhabi, which has bailed out Dubai, and the 2,683-ft skyscraper will cast a shadow over its neighbouring emirate.
If ever there was a sell signal for investors it is the erection of record-busting towers. When General Motors’ boss built the Empire State Building in New York in 1929, rival Walter Chrysler designed his own tower to be 100-ft higher – and the Wall Street crash engulfed both. Chicago’s Sears tower was finished in 1973 just as banks and markets crashed.
In 1998, Malaysia took the tallest building title with its Petronas Towers just as the Asian crisis struck and Brazil sought to beat it with a 1,622-ft Sao Paulo building in 2000 until the money ran out. Taipei celebrated the bottom of the market with its high tower in 2004, and now Dubai - $100bn in debt with $25bn of that hastily borrowed from Abu Dhabi – is the title-holder.
Countries – especially developing market nations – think building high will put them on the map, but owning the world’s largest empty building merely puts their head above the parapet and draws attention to the weakness of their economic foundations. Sheikh bin Zayed may regret having his name associated with Dubai’s folly.
But it is no coincidence these towers are completed just as economies crash. Property development has a cycle with a long lead time just as financial activity has a cycle. Buildings are started during booms: that is the time when occupier demand is rising, investment yields are falling and finance is plentiful.
And if one develop can get his plans off the drawing board, so can many others. Ten developers may spot the need for three new buildings, so the supply of space can thus outpace demand. By the time construction is finished the boom is over and there is an oversupply of offices, shops or homes and values thus fall.
The boom and bust is self-fulfilling. If Dubai’s tower had been started earlier and finished sooner, its space might now be full with 12,000 people living or working there. But the finance would not be available earlier: its backers needed to see signs of a developing boom before they started. The building is thus finished just as the Dubai bubble bursts. The lucky developers are those so slow they can cancel their projects before incurring more wasted costs.
