Commentary
Colin Foreman
Editor

As work restarts on Jeddah Tower, economists and historians will revisit the theory, known as the Skyscraper Index, that the completion of record-breaking towers coincides with recession.

The notion that completing extreme skyscrapers and economic downturns are correlated is a longstanding debate.

The origins of the Skyscraper Index can be traced back to the early 20th century. In the 1920s, the completion of the Chrysler Building (pictured) and the Empire State Building in New York coincided with the Great Depression. The correlation then repeated itself when the Petronas Towers in Malaysia were finished during the Asian financial crisis in the late 1990s.

Then in 2008, construction work for the Burj Khalifa in Dubai was in the final stages as the global financial crisis crippled the emirate’s property market with debt.

There are three broad reasons commonly used to explain the phenomenon. The first is overconfidence and speculation. Building tall towers is an expensive venture, which means the decision to go ahead with them is typically made during a period of economic exuberance. The danger is that this exuberance can also create speculative bubbles that may burst before tall towers are completed.

The likelihood of bubbles bursting before completion is increased by the second reason for the correlation: long construction periods. Record-breaking towers take a long time to plan, design and construct, and during the time between their conception and completion, the economic landscape inevitably changes.

The third reason is the misallocation of resources. In boom times, investors are prone to chasing higher returns without fully assessing the risks. Pouring resources into large building projects is often an example of such misallocations, and when economic corrections occur, these projects can become symbols of excess.

The head start means Jeddah Tower should comfortably be completed before 2030

Improved fortunes

Jeddah Tower has restarted during a period of economic exuberance for Saudi Arabia. Oil prices are riding high, with Brent crude trading at nearly $95 a barrel at the end of September. While output cuts mean the Saudi economy is technically in recession, the performance of the non-oil sector remains robust and record levels of project spending are expected to be achieved by the end of this year.

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How long it will take to complete Jeddah Tower is not yet clear. While the tower is a major undertaking, it does have some advantages over a new project. It has already been designed, and the foundations and one-third of the superstructure have been completed.

This head start means that the tower should comfortably be completed before 2030. This will be crucial because Riyadh has committed to completing projects worth hundreds of billions of dollars as part of Vision 2030, and this spending should help cushion Saudi Arabia’s economy from any storm clouds and headwinds that may be gathering elsewhere in the world.