Editorial

Citation

French, N. (2005), "Editorial", Journal of Property Investment & Finance, Vol. 23 No. 3. https://doi.org/10.1108/jpif.2005.11223caa.001

Editorial

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  In these matters the only certainty is that nothing is certain (Pliny the Elder, AD 23-79).

This issue is a themed issue looking at “Uncertainty and risk in real estate”. Uncertainty is an integral part of real estate investment, valuation and development. The papers in this issue concentrates on the practical impact of uncertainty in real estate. The sources of uncertainty are rational and can be identified. Each paper, in a different way describes how risk and uncertainty can be addressed in a practical manner.

The terms risk and uncertainty are often used interchangeably. Risk is seen as a euphemism for uncertainty. However, this colloquial use of the words is unhelpful in identifying the principal issues involved. It is important to define these words more precisely. Uncertainty is anything that is not known about the outcome of a venture at the time when the decision is made, whereas risk is the measurement of a loss identified as a possible outcome of the decision.

It is generally agreed that uncertainty is due to the lack of knowledge and poor or imperfect information about all the inputs that can be used in the analysis. If we are unable to confirm the veracity of the inputs then the resulting outcomes is uncertain. However, if we are able to assign a probability to the input variables it will allow us to determine the range of possible outcomes. The output is therefore a measure of risk.

This issue of the Journal of Property Investment & Finance presents three academic papers and a Practice Briefing on the same theme. The first paper by Adair, Hutchison, Burgess and Roulac, “The appraisal of urban regeneration land: a contemporary perspective for allowing for uncertainty” looks at the way in which uncertainty can be addressed in the regeneration process. The second paper, by Lee and Stevenson, looks at risk in the context of real estate portfolio construction, whereas the final paper, by Adair and Hutchison, considers risk assessment in valuation by a risk scoring system.

The Practice Briefing is a survey of valuation practice and questions the way in which uncertainty is expressed in valuations. In each case, the papers are adding to an extensive literature on the subject. Uncertainty and risk are always present in real estate investment and valuation, the question is how can this be measured, managed and expressed? We hope that this issue is a small step to a better understanding of the uncertainty and risk in the decision making process.

Nick FrenchThe University of Reading Business School, Reading, UK