Risk assessment in commercial real estate development

Abstract

Purpose The purpose of this paper is to analyze the commercial property development risk factors from the entrepreneur’s point of view against social, economic, environmental, technological and political risk assessment criteria. After that, this study aims to assess the risk factors based on the analytical network process (ANP) model and to prioritize the key risk factors to identify which risk factor is highly affected to the commercial development process. Design/methodology/approach The data were collected through face-to-face interviews using a structured questionnaire. The analysis of the risk factors involved the ANP model using super decision software. Findings The results revealed that there are five major risk factors such as environmental, social, economic, technological and political risk, and 32 sub-risk factors. According to the super matrix calculation, the synthesized values for three projects were 0.0704, 0.0532 and 0.0431, respectively. It was identified that Ward City was 0.0704, indicating that it is comparatively less risky and, hence, can be categorized as the best development and considering the sub-risk factors; the results show that the highly affected risk factors for the development are: the council approval process, climate changes and natural disaster, and the least affected risk factors are confidence to the market, lifecycle value, investment return and currency conversion factor. Practical implications The paper includes implications for the development of commercial properties, risk and risk assessment criteria to make risk management strategies and policy implementation. Originality/value The research findings are helpful in improving risk management strategies in the country, and policy formulation should focus on the above identified three risk factors in order to mitigate the risk in every stage and to achieve sustainable project development while increasing the satisfaction of long-term investment goals.

Towards Sustainability of Real Estate Development: An Integrative Review of Smart City Planning Considerations

“…Consequently, appropriate planning should be undertaken, especially at the ideation or conception stage of such projects, where opportunities are identified, designed and planned for [16]. Beyond that, to design, construction, hand-over and letting or occupying the building, risk is a common feature [15].…”

“…Therefore, plans to support environmental sustainability, increase the value of assets, and improve the wellbeing and productivity of users, all at limited costs, should be made at the planning stage in order to ensure achievement of desired outcomes from real estate investments [1]. All potential risks to the project, which may be systematic or uncontrollable (for example, market risk, interest risk) and/or unsystematic should be identified [15]. These may include operational, business, transactional, reputational and developmental risks to the project.…”

“…Although traditional approaches to risk assessments have been used (such as risk matrix ioMosaic, Bayesian belief network, Monte Carlo simulation and multi-criteria decision analysis), they mostly depend on results derived from either panel discussions or the ranking method, which are not always convincing enough due to the lack of quantitative measurements and strong theoretical bases [15]. In addition, the DCF/NPV techniques do not highlight the added value from managerial factors and flexibility [20].…”

“…However, these factors mainly influence the decision to purchase or invest in new property in a particular location, or alternative investments (indirect and synthetic property). Other studies identified environmental, social, economic, technological, and political risks as broad factors, which pose risks to commercial real estate developments [5], [15]. The factors identified in this section are focused on direct real estate investments and factors that influence their development patterns.…”

“…), construction (late changes, big financial risk, exposure, etc. ), delays, and sale/rents (faulty assumptions) were identified [15]. However, these studies were singularly focused on factors affecting either a decision to purchase or a particular type of property.…”