Real Estate

London's Rising Towers May Presage a Shrinking Economy


If hemlines tell which way the stock market is headed, maybe city skylines do the same for the economy. Tall stories often have unhappy endings.

That thesis certainly holds up in London, where new towers are sprouting. British Land, the U.K.'s second-largest real estate investment trust, has revived plans for a 47-story tower in the City of London dubbed the "Cheese Grater." Land Securities Group, its bigger rival, has found backers for its "Walkie-Talkie" building, which will be 10 floors shorter. Next to London Bridge, cranes are attaching glass panels to the soaring frame of the "Shard of Glass." Designed by architect Renzo Piano, the 1,017-foot (305-meter) pyramid will dwarf the other buildings north of the Thames to become Britain's tallest.

The history of this global capital suggests vertical ambitions often presage a southerly direction for the economy. In mid-2004, Britain was enjoying its 48th consecutive quarter of gross-domestic-product growth, while Swiss Reinsurance was moving into a 40-story edifice in central London nicknamed the "Erotic Gherkin" for its resemblance to a swollen pickle. Four years after the Gherkin opened for business, the British economy was in recession, and continued to shrink for five quarters.

In 1990, Canary Wharf Tower stuck its head in the clouds to become the U.K.'s tallest structure at 800 feet. The economy grew 4.3 percent in July of that year. Once Canary Wharf was completed, the economy shrank in five of the next eight quarters. Before Canary Wharf, London's tallest building was the NatWest Tower, at 600 feet. The NatWest Tower's completion coincided with the 1980 slump.

That building is now named Tower 42. If you look west from the top floor's aptly named Vertigo bar, you can see the Post Office Tower, the previous record holder. At 580 feet, excluding a 40-foot antenna, the Post Office Tower started beaming radio and television signals in 1964. Three years later, the government had to devalue the pound.

Now some economists fear budget cuts will trigger a recession. Land Securities just opened the City's biggest mall, with 220,000 square feet of retail space fighting for customers—eight days after Chancellor of the Exchequer George Osborne detailed more than 80 billion pounds ($128 billion) of spending cuts and 490,000 public-sector job losses.

The edifice effect isn't restricted to London. The onset of the Great Depression coincided with the construction of New York's Chrysler and Empire State buildings. In Dubai, the $1.5 billion Burj Khalifa building is now the world's tallest. A month after the tower opened, Dubai needed a $10 billion lifeline to avoid default.

Why are tall buildings leading indicators of recession? Possibly because the backers conceived of their grand designs when the good times were so good that no one ever thought they would end. Developers might want to ponder these lessons before their ambitions get the better of their reduced circumstances.

The bottom line: London is home to some grand construction projects. Unfortunately, tall towers often foreshadow shrinking economies.

Gilbert is the London bureau chief and a columnist for Bloomberg News.

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