Risky business: Companies relocating or expanding their real estate portfolios in Asia Pacific are overlooking these seven construction risks

New JLL report reveals where things can go wrong during real estate construction projects, and how these issues can be avoided

SINGAPORE, 19 December, 2013 —  As companies across the world prepare to expand their presence in Asia’s emerging markets, a new report by Jones Lang LaSalle, ‘Who’s Protecting Your Blindside?’ highlights seven hidden risks associated with real estate construction projects.

“While professional project management is well understood and accepted as critical to the success of real estate projects, the importance of construction management is often overlooked and frequently performed by a part-time supervisor rather than a professional construction manager,” said Dave Colverson, Regional Director, Construction Management for JLL in Asia Pacific.

According to the report, many businesses expose themselves to the following seven pitfalls during real estate construction projects, despite good project management at the onset:

1.       Confrontational relationships – when competing on price, it is in the interest of contractors to protect and maximise their position, which can lead to cutting corners to save time and cost and avoid penalties

2.       Lack of flexibility – failing to accommodate flexibility in the project scope means that potential changes made along the way result in avoidable additional fees and delays

3.       Miscommunication – without clear communication and responsibility, crucial tasks can be missed and decisions made based on poor/uninformed assumptions easily lead to delivery issues

4.       Breakdown between project phases – ineffective stakeholder management leaves gaps in knowledge transfer where technical errors an oversights can occur

5.       Unfamiliar local market dynamics – insufficient market knowledge limits the ability to deal with unanticipated local requirements, legislation and restrictions

6.       Lack of accountability on site – absence of a qualified on-site representative leads to mistakes or delays, and the inability to prevent accidents and address the consequences in a timely manner

7.       Transparency and governance issues – lack of identification, understanding and compliance in supply and management of materials and labour resources exposes your business to regulatory, legal and financial risk

“Managing projects in diverse Asian markets can be particularly challenging for companies that are unfamiliar with local market dynamics. Local nuances include skills and availability of trade contractors, legislation such as health, safety and environment, availability of logistics and infrastructure, cost of trade contractors and materials, taxes, authority approvals and regulations,” said Mr Colverson.

For example, a company in China was unable to move into its new office space on time because the main contractor had not obtained the required authority approvals. Later, sick leave and staff complaints were high because the main contractor had not allowed enough time to purge the air of construction-related smells. In India, an on-site flood during an office fit-out left a company with financial loss, delayed occupancy and a damaged reputation because no one had overall responsibility for work at the construction site. Insurances were limited to individual trades and no one was assigned to effectively plan and manage the necessary rectification.

“Unfamiliar local market dynamics and real estate transparency issues are among many hidden risks throughout a construction project,” said Mr Colverson. “Companies can reduce their risk by engaging a professional construction manager who is familiar with the local market as early as possible. They will benefit from advice on potential construction issues during the design stage, smooth transition between all phases of the project and a single point of accountability for all on-site works. This in turns insulates companies from the subsequent business impacts.”

While the success of real estate construction projects is typically measured by time, cost, quality and safety, when things go wrong bottom-line impact can be significant. This includes risk to a company’s reputation, brand, compliance, talent attraction, customer satisfaction, business continuity and profitability.