ECONOMIC

RATIONALE
NIKHIL ABDULLA JASMINDER SHREYANSH SUHAS BHAVANA ANUSHA
ECONOMIC HEIGHT
• The true economic height of a structure is that height which will secure the
maximum ultimate return on total investment (including land) within the
reasonable useful life of the structure under appropriate conditions of
architectural design, efficiency of layout, light and air, ‘neighborly
conduct’, street approaches and utility services.
• Economic Height provides a useful guide (though not the only one) for
understanding why skyscrapers get built, since this height is determined by
the best balance between the revenues and costs.
• In general, going taller will generate more income, but will also add to the
expense. In modern economics terminology, the economic, or profit
maximizing, height is one where at the highest floor, the additional or
marginal revenue from that floor just equals the marginal or additional cost
to providing it.
• If built one floor higher, the cost of adding the floor will be greater than the
revenue and will not be worth it. If less than that height, money is “left on
ECONOMIC HEIGHT
• It’s worth stressing is that a developer
builds this optimal height to earn a
profit.
• People and companies are willing to
pay the high prices because of the
needs they fulfill and the benefits
they provide.
• Thus, Economic Height is a response
to the demand; not the other way
around.
THE DRIVERS OF ECONOMIC
HEIGHT
• The evidence suggests that the
bulk of the world’s skyscrapers are
consistent with the notion of
Economic Height.
• This is not to say that all
skyscrapers reflect the best balance
between the costs and benefits, but
it is to say that the majority of the
world’s skyscrapers have a strong
economic rational, in that they are
catering to a demand for building
height.
ECONOMIC GROWTH
• Most important is the process of economic growth and urbanization. The
more economic activity there is in a city or region the more central
locations become vital because people and business need to cluster near
each other to more efficiently produce the goods and services that our
modern economies require.
• The skyscraper shrinks space so that hundreds if not thousands of people
can be at the same geographic coordinates at the same time.
• The tremendous demand to be in the central city creates a kind of “battle
for place”—if more people want to be at a central location than can be
accommodated, the price of that location rises. As land values rise, so
does Economic Height, and skyscrapers rise as a result.
• The ability of a country to build skyscrapers is directly related to the
size of its economy.
• Once a country hits a threshold, in terms of its gross domestic
product, there is then a very strong relationship between both the
number of skyscrapers it has and the height of its tallest building.
• Arguably the greatest predictor of the height a country’s tallest
building is the number of high rise buildings it has; and the greatest
predictor of the number of tall buildings is the size of its economy.
BUILDING COSTS AND EFFICIENCY
Building costs have a large impact. But impact and size are different entities. The share of
building costs, as a part of the construction costs, takes a humble place in the total process :

• Building costs are only a part of the total investment. In the feasibility study land costs and
other additional costs may have a larger impact and are more negotiable.
• Value creation means more to a project then only looking at the cost side of the balance, in
which the building costs or even the investment may be treated as a fixed figure, or based upon
indices and the required gross floor area.
• Compared to life cycle costs building costs, as well as the total investment costs, are only a
fragment, although the design itself may have a large impact on the life cycle costs,
• Looking at the turnover of the building in its life time the building costs become really modest.
The impact of design and building costs on this turnover in terms of a building (not) meeting the
needs of the user can be huge.
CYCLE OF VALUE OF PLOT
 LAND COST
• Building costs and efficiency have a national
character due to national legislation. Feasibility is
much more defined by location and the market and
therefore has a national as well as a local aspect.
• As stated by a colleague working in the Hong
Kong environment: “Land costs are so dominant, it
does not matter how you make high rise, as long as
you make it!”
• Educational projects have been showing that
certain high rise designs are not feasible in
Rotterdam, while the same design would be
feasible in Amsterdam, where the higher rent level
sufficiently compensates the higher cost of land.
MODELLING LAND COST
The value created with a high rise project could
be represented by the rent per square metre
gross floor area. This rent will increase with the
height due to the additional value of the height.
It will not necessarily be a straight line.
Comparable with high rise apartments where
penthouses are sold easier then mid rise
apartments, the highest office floors will give
another status then the 20th floor in a 60-floor
building.
Time will influence this line. Reaching the
highest height in the city may cause a
temporarily jump until another building will take
over this ‘top position’.
ECONOMIC EXTERNALITIES
• Land owners will point out that the logical party to contribute to the
increased building costs will be the users of the high floors. If they are
not willing to pay the required rent, than ‘there is no market’.
• Depending on the market situation the user will ask for a lower rent
because of the traffic time in order to reach the desired top floors.
• In case the land owner is the local government differentiation in land
prices are used for planning strategies: if the municipality requires
social housing they will reduce the land price for such a function.
• The market is willing to pay high rents in this area, giving a good
financial base for high rise.