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Risk assessment in commercial real estate development: An application of analytic network process

Malka Thilini (Department of Estate Management and Valuation, University of Sri Jayewardenepura, Colombo, Sri Lanka)
Nishani Champika Wickramaarachchi (Department of Estate Management and Valuation, University of Sri Jayewardenepura, Colombo, Sri Lanka)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 29 May 2019

Issue publication date: 9 July 2019

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.

Keywords

Acknowledgements

This research was supported by a grant from the RPDC, DEMV, University of Sri Jayewardenepura.

Citation

Thilini, M. and Wickramaarachchi, N.C. (2019), "Risk assessment in commercial real estate development: An application of analytic network process", Journal of Property Investment & Finance, Vol. 37 No. 5, pp. 427-444. https://doi.org/10.1108/JPIF-01-2019-0002

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited