Advancing real estate decision making: understanding known, unknown and unknowable risks

Abstract

Purpose

Whilst existing literature on real estate risk management focusses almost exclusively on holistic risk management techniques, documented increases in frequency and magnitude of unforeseen, rare and extreme events can throw up sudden, unexpected shocks that can challenge recognised real estate decision-making strategies. The paper aims to discuss this issue.

Design/methodology/approach

To advance real estate decision-making practice in this area, this research paper takes the skilfully conceptualised downside risk framework presented by Diebold et al. (2010), being the known (K), the unknown (u) and the unknowable (U) risk categories, to provide a blueprint for effective real estate decision making in a changing global environment.

Findings

In recording categories of risk, managing uncertainty can be achieved by an interrelated approach of adaption, robustness and resilience. This is important part of a real estate manager’s decision-making toolkit as risk recognition and knowledge of KuU event categories can augment an effective management strategy.

Originality/value

The mastery of modern real estate risk management can be better served by understanding and managing extreme downside risk events. Creating a comprehensive risk management framework can enhance comparative real estate performance whereby unprepared competitors fail in a world increasingly affected by large, highly improbable and unpredictable events.

Citation

Higgins, D. and Perera, T. (2018), "Advancing real estate decision making: understanding known, unknown and unknowable risks", International Journal of Building Pathology and Adaptation, Vol. 36 No. 4, pp. 373-384. https://doi.org/10.1108/IJBPA-01-2018-0006