The use of judgement by commercial property developers

Robson, Simon (2009) The use of judgement by commercial property developers. In: COBRA 2009, 10-11 September 2009, University of Cape Town.

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Abstract

In the UK, as in other developed market economies, commercial property is a multimillion pound industry that makes an important contribution to GDP and employment. Commercial development is a classic example of a high risk / high return business; a fact that is particularly apposite in times of economic uncertainty. Developers clearly take significant risks at various stages of the development process; and they do this in anticipation of the considerable financial rewards on offer. Equally, when their assessment indicates it, the decision will be taken not to proceed. On what basis do they make these decisions? Previous research by the author found that, while formal risk assessment is undertaken by developers, the process is heavily influenced by their risk attitude and ‘judgement’. The research seeks to explore these issues by generating empirical data on developers’ ‘judgement’ and setting them against existing theoretical work. The overall aim of the study is to examine the issue of ‘judgement’ in risk-related decisions in the property development process, and to determine whether this concept can be theoretically explained using existing work on risk, risk attitude and heuristics. The method of enquiry is predominantly in-depth, semi-structured, face-to-face interviews with experienced property developers. At this stage the data has been analysed by a sorting and sifting process to try and find similarities, differences and patterns in the responses. The research has found that property developers essentially believe that they adopt a fairly objective approach to risk related decision making however the use of judgement, intuition and experience was frequently referred to. A preliminary analysis of the data suggests that heuristics play a role in the decision making process. In particular the availability heuristic, confirmation trap and cautious shift heuristic are evident. The work reports on the interim findings of a continuing study, and conclusions are, as yet, provisional, but in terms of its aims, objectives and method the paper gives an insight into an important and little researched issue in the property development industry.

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