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Double Dip Lurks Behind London's New Skyscrapers
4 November 2010
If hemlines tell which way the stock market is headed, maybe city skylines do the same for the economy, in reverse. Tall stories often have unhappy endings.
British Land Co., 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 “Cheesegrater.” Land Securities Group Plc, its bigger rival, has found backers for its “Walkie- Talkie” building, which will be 10 floors shorter. Next to London Bridge, cranes are slapping glass panels onto the soaring frame of the “Shard of Glass,” architect Renzo Piano’s 1,000- foot (305-meter) pyramid that will dwarf the other buildings north of the River Thames to become Britain’s tallest edifice.
The history of London landmarks suggests vertical ambitions typically presage a southerly direction for the economy. From the Post Office Tower in the 1960s to the NatWest Tower in the 1980s and the Canary Wharf Tower in the 1990s, each was the tallest London building of its day, and all were harbingers of tougher times.
In mid-2004, the U.K. was enjoying its 48th consecutive quarter of gross-domestic-product growth. In the middle of London, Swiss Reinsurance Co. was moving into a 40-story edifice called the “Erotic Gherkin” for its resemblance to a swollen pickled cucumber. Four years later, the British economy contracted 0.3 percent as it started to sink into a recession, and continued to shrink for the following five quarters.
Canary Wharf Tower stuck its head in the clouds in 1990 to become the U.K.’s tallest structure at 800 feet and 50 floors. The economy grew in every quarter in the second half of the 1980s except one, averaging an expansion rate of 0.9 percent. U.K. house prices increased 1.2 percent a month on average, according to an index compiled by HBOS Plc, Britain’s biggest mortgage lender. They rose 3 percent or more for much of 1988 and peaked with a gain of 4.3 percent in July of that year.
Once Canary Wharf was completed, the economy shrank in five of the next eight quarters. Average quarterly growth from 1990 to 1995 was 0.4 percent, half the performance achieved in the previous half-decade. The housing market stumbled, posting an average monthly decline of 1 percent for five years that drove many householders into “negative equity,” owing more on their mortgage than their homes were worth. Unemployment soared from 6.9 percent in early 1990 to 10.4 percent by December 1992.
Before Canary Wharf, London’s tallest building was the NatWest Tower, at 600 feet. National Westminster Bank Plc, now part of Royal Bank of Scotland Group Plc, opened the first City skyscraper in the early 1980s. In the five preceding years, the U.K. had avoided a recession, measured as two consecutive quarters of contraction, and had posted an average growth rate of 0.5 percent for the period.
The NatWest Tower’s opening coincided with a slump. The economy contracted for five consecutive quarters from the beginning of 1980. Its average growth rate in the first five years of the 1980s was just 0.4 percent. Unemployment, which averaged 5.25 percent in the second half of the 1970s, shot up to 8 percent by the end of 1980, reached 10 percent the following year and peaked at 11.9 percent in 1984.
The 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.
Post Office Tower
At 580 feet, excluding a 40-feet aerial, the Post Office Tower started beaming radio and television signals in 1964. Three years later, the government was forced to devalue the pound to $2.40 from $2.80. The economy’s average quarterly growth rate from 1960 to 1965 was 0.8 percent; it dropped to 0.5 percent in the two years following the Post Office Tower’s opening, and was 0.7 percent in the five years through 1970.
Now, some economists are concerned government spending cuts will push the U.K. back into a recession. Last week, Land Securities opened the City’s biggest mall, with 220,000 square feet of retail space fighting for customers -- just 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.
London isn’t alone. The Great Depression was the backdrop to both New York’s Chrysler Building -- completed in 1930 after real-estate developer William Reynolds ran out of funds and sold the uncompleted building to industrialist Walter Chrysler -- and the Empire State building, completed in 1931.
In Dubai, the $1.5 billion Burj Khalifa building now holds the title of the world’s tallest; its name was changed from Burj Dubai when it opened in January in honor of Abu Dhabi leader Sheikh Khalifa Bin Zayed Al Nahyan. This was a month after Dubai needed a $10 billion lifeline to avoid default.
Real-estate developers might want to consider the lessons of history before letting their lofty ambitions get the better of their reduced circumstances.
(Mark Gilbert, author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable,” is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.)