Rachel’s note: Last week, Phil started a series of articles explaining the “Cantillon effect” and its relationship with the 18.6-year real estate cycle.
Catch up on that right here. In part two, he broke down the cycle using the Skyscraper Index.
Today, he’ll tell us how we can use mega-tall projects from around the world to forecast the cycle… and why it means there’s no recession… yet.
In terms of the current real estate cycle, the stage is now set for the second half of the cycle to really rev up.
In other words, we are almost at the same point that we were in when the Burj Khalifa and Royal Clock Tower were first proposed during the last cycle.
Let’s look now at what exactly is being proposed to be built.
Simply because these projects are the most likely to join the three already-built mega-talls and be completed right into recessionary conditions at the end of the current real estate cycle.
These Projects Tell Us When the End Is Near
The highest building to be constructed, possibly ever, is Jeddah Tower, located in Saudi Arabia.
It will, if completed, be the first ever man-made object to reach a full kilometer into the sky.
Jeddah Tower commenced building in 2013. It was to be the crown jewel of the proposed Jeddah economic city, hoping to become the Dubai of Saudi Arabia.
However, only a portion of the building has been completed.
This is due to political discord, construction labor issues, and then, in 2020, Covid-related lockdowns.
Basically, it means no new work has started on-site over the last several years.
But there is now strong support to recommence construction. We would need to see this happen soon, but if there’s a chance to be completed by the end of the current cycle, it would instantly become our next Burj Khalifa.
And we know how that opened.
Next is the Signature Tower in Jakarta, Indonesia. Planning permission was granted in 2015, and a China-backed consortium was found to lead the construction.
In June 2018, the proposal was shelved indefinitely due to the demand for office space being “soft.” The developer also undertook road shows to drum up investor interest and finance for the project.
This mega-tall would reach 638 meters high (2,093 feet) with 113 stories of hotel and office space.
If completed, it could also be the world’s only shrinking mega-tall, seeing as how Jakarta is sinking at a rate of 25 centimeters a year…
We move now to China and Shenzhen, where the proposed Shenzhen Tower is planned.
These Builds Coincide With Expected Booms and Busts…
Shenzen Tower in China has no formal timeline for its construction yet, but a rumored 2024 opening may be optimistic…
It will stand at 642 meters tall (2106 feet) with 128 floors spread out over residential, office, and hotel space.
Covid-related lockdowns got in the way of construction, so there’s a strong chance this building will be completed later than 2024 now.
At that point, its opening would coincide with my expected market peak and then a bust.
Lastly, in Dubai, Uptown Dubai Tower is half a dozen buildings, of which Tower 1 will be 711 meters (2,333 feet) tall.
Tower 1, however, has yet to start construction.
If you have noticed a pattern of delays and projects being unfinished, you’re perceptive.
Here’s How You’ll Know the Tide Has Really Turned
We will be watching the progress of these potential mega-talls as the second half of the cycle really starts to kick in. For now, they are the tallest buildings most likely to open in recession and only partially tenanted, come the end of the current real estate cycle.
Do note, for now, the primary function of all of them is office space. This maximizes the returns to investors and provides the type of recurring income that banks need to finance them.
Dubai’s towers will also incorporate or include an underground railway station… another way that developers maximize the rent from each site.
Remember these projects the next time you hear folks talk about the looming recession or their opinions that the real estate cycle may end prematurely.
All that’s needed for each is an enormous injection of credit and substantial amounts of hubris.
When the names of these projects are back in the news, you’ll know that the tide will turn soon.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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