Rehabilitation versus demolition and redevelopment : a value-based decision framework for private commercial properties
Property developers, investors and financiers usually have reservations about the investment performance of rehabilitated and refurbished properties.This is due to the uncertainties introduced by low rental income, higher yields and shorter leases associated with secondhand properties. This situation is thought to be changing as more and more successful schemes are reported in the property and business press. What is changing attitudes is the improved economics of refurbishment schemes. Occupiers are seeking to reduce occupancy costs after the last recession. Rehabilitated properties which can offer facilities comparable to new build but at a fraction of new build rents are therefore becoming attractive. Furthermore, recent innovations in services and communication technology is making it possible to service older properties to the same level as new buildings. This is creating investment value in buildings that might otherwise have remained unlet. Despite the improved situation, there seemed to be no formal framework to aid building rehabilitation versus redevelopment decisions in the private commercial property sector. The critical decision determinants are scattered over several publications. What this research has done is to assemble all factors within a single framework. Examining the nature of buildings, it is apparent that different groups evaluate buildings differently. To some they are symbols of prestige or image and to others they help create the environment we live in. Yet more, some see buildings as shelters and investment assets. In the private sector, the main actors that influence property development are occupiers, developers and investors. Each of these actors evaluate buildings on different criteria. This makes the building rehabilitate-redevelop decision a conflicting multi-criteria problem. The framework created by this research is therefore based on Multiattribute utility theory (MAUT). The research identified the objectives of building renewal from the perspectives of occupiers, developers and investors using the principles of value-focused thinking. The common indicators linking these objectives became the decision attributes over which utility and value functions are to be created. By the research results, the option chosen in the decision scenario described above is determined by the attributes: profit, maintenance cost, energy cost, floor to floor height, floorplate area, floor load-bearing capacity, floorplate width and on-site car parking provisions. The preferred option is the one that maximises the subjective value of the decision maker over these attributes.