This is part of a Series in eight parts. Here are the other posts.
- On commercial Real estate
- Defining project Value in CRE
- Identifying Risks in RE
- Sample table Project development
- On Construction contracts
- Essential types of project development
- Capital funding
- Components of project development
Buildings can be systematised the best according to their life cycle and the type of use. Building can be either new or existing, and can be used for tenants, or own use.
Tenants-occupied building
New construction
At the beginning of the project we usually don’t know who the concrete tenant will be. The developer must define the use and the specifications of the future building. They do it based on experience, market analysis/conditions and market prognosis.
Renovation
With the population growth slowing, it is to expect that this type of development will gain on importance. The deciding factor is what to keep from the existing building. Is the general structure good? The facade? Installations? Would you like to add floors on top or under the building? Do the floors need to be changed?
The general rule is, that renovation is more expensive than the new construction. There are more unknowns and hidden defects (problems for planing). Construction is more complex, as they have to work around the existing elements, but also they have to correct so that the new elements fit into the old structure. It also takes longer to finish the projects.
On the positive side, renovation can reduce building costs, extends the life-cycle, and improves the floor usage.
4.2 Owner-occupied building
The usage of the building is known in advance. Usually the building have a representative function, or have a very specific usage (production).
4.3 project risks
Internal risks (can be managed from the developer):
- Land/construction risks
- Quality risks
- Costs risks
- Schedule risks
- Organisation risks
External risks (developer cannot influence them):
- Development/market risks
- Rental risks
- Location risks
- Taxes risks
- Approval risks
- Financing risks
Miha Hillenkamp 