An analytic network process for risks assessment in commercial real estate development
| Published date | 24 April 2009 |
| Date | 24 April 2009 |
| DOI | https://doi.org/10.1108/14635780910951957 |
| Pages | 238-258 |
| Author | Zhen Chen,Sukulpat Khumpaisal |
| Subject Matter | Property management & built environment |
An analytic network process for
risks assessment in commercial
real estate development
Zhen Chen
School of the Built Environment, Liverpool John Moores University,
Liverpool, UK and
The Management School, Chongqing Jiaotong University,
Chongqing, China, and
Sukulpat Khumpaisal
School of the Built Environment, Liverpool John Moores University,
Liverpool, UK and
Faculty of Architecture and Planning, Thammasat University,
Bangkok, Thailand
Abstract
Purpose – The purpose of this paper is to introduce a novel decision-making approach to risks
assessment in commercial real estate development against social, economic, environmental, and
technological (SEET) criteria. It therefore aims to describe a multiple criteria decision-making model
based on analytic network process (ANP) theory, and to use an experimental case study on an urban
regeneration project in Liverpool to demonstrate the effectiveness of the ANP model.
Design/methodology/approach – The paper commences with a description about risks related to
commercial real estate development, and provides a list of risk assessment criteria based on literature
review and experience in related areas. The ANP is then introduced as a powerful multicriteria
decision-making method. An experimental case study is finally conducted with scenarios and
assumptions based on a real urban regeneration project in Liverpool.
Findings – The paper defines a group of risks assessment criteria against SEET requirements
directly related to commercial real estate development. An ANP model is set up with 29 risks
assessment criteria, and results from an experimental case study reveal that the ANP method is
effective to support decision-making based on risks assessment to select the most appropriate
development plan; and therefore it is applicable in commercial area.
Originality/value – This paper defines SEET criteria for risks assessment in regard to SEET
requirements to emphasise sustainable development; while the ANP is introduced to assess risks in
commercial real estate development. The ANP model provides a platform for decision makers in
commercial real estate development to evaluate different plans based on the degree of interactions
among risk assessment criteria.
Keywords Risk assessment,Real estate, Sustainable development,Decision making, England
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
This research is funded by Thammasat University, Thailand, and supported by School of the
Built Environment at Liverpool John Moores University. The authors would like to give special
thanks to Nick French, the Editor of the Journal of Property Investment & Finance, and other
anonymous referees for their comments to improve the paper.
JPIF
27,3
238
Received August 2008
Accepted January 2009
Journal of Property Investment &
Finance
Vol. 27 No. 3, 2009
pp. 238-258
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780910951957
Introduction
Risks and uncertainties are associated with all projects in commercial real estate
development and they can strongly influence all related progresses at all stages of the
entire lifecycle of properties. Specifically, those risks can occur at initial stage of a
project when developers conduct feasibility study, design and planning, bidding and
tendering, construction, or even during marketing or handover period, meanwhile,
risks existing in initial stage can also influence the use of the property as well.
Risks in each commercial real estate development can be identified at project
management level using brainstorming techniques, and risks are generally defined as
events that could arise and affect the critical factors of one project. For example,
Huffman (2002) put major risks associated with commercial real estate development into
three categories, including financial risks, physical risks, and regulatory risks. There are
many direct or indirect reasons that risks may occur in commercial real estate
development, and some normal reasons are relevant to the fragments existed throughout
a project lifecycle covered by design, construction, and facilities management, which
results in the lack of integration of building elements, communication among project
partners, and even misapplication of the building structure and its services systems.
In addition to the influence of those risks to specific project, there is also a concern of
theirimpacts to local, regional and nationalenvironment, communitiesand economies in a
long-termperspective underclimate change scenariowith regard to competitiveenterprise
growth and sustainable urban development. For example, according to generic
characteristics of commercial real estate, one of the most significant risk and
uncertainty towards investment return is the income stream, since the income streamis
uncertain,as well as the possible events affectingthe income stream and uncertaintyas to
the probability of the outcomes from these events (Frodsham, 2007), therefore,
affordabilityis adopted in TableI as one criterion to assess risks.Moreover, it is important
to look at subjective issues that may not be revealed by objective data according to
statisticsbut might lead to risks of loss for some reasons.According to Booth et al. (2002),
there are subjective elements to be considered in risk managementprocess, which covers:
.tenant risk (multi-tenanted less risky);
.demand and supply of property type;
.demand and supply for properties in different locations (local market conditions);
.economic and property market environment (voids, rental growth, leverage, and
pricing); and
.illiquidity (it may not be possible to sell certain types of property quickly, except
at below-valuation prices).
Therefore, both subjective and objective issues are considered to define criteria for
risks assessment (Table I).
Generally speaking, the risk managementprocess can be regarded as an ongoingand
iterative process despite of the differences of each project with specific characteristics;
and the approach adopted by professionals to risks management is mostly undertaken
based on thethree basic steps, which consistsof risk identification andinitial assessment,
response and mitigation, and further risk analysis (see other methods in Figure 1).
Frodsham (2007) suggested that real estaterisks can only be managed within an overall
framework or risk management processes, and those risks shall apply a variety of
An ANP for risks
assessment
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