“I’d rather be dumb and antifragile than extremely smart and fragile”
– Nassim Taleb, in Antifragile: Things That Gain from Disorder (2012), p4
Looking beyond covid-19 (see our previous article), the future performance of real estate assets cannot be judged without assessing the likely impact of extreme risk events. There will be winners and losers, as decision-making under uncertainty can offer real estate opportunities from disorder to exposing others to downside risk and extensive loss.
To improve agility and reduce susceptibility towards unpredictable major events, real estate strategies need to focus more on these adverse events. Concepts and measurements of fragility, vulnerability and resilience are important initial steps in decision-making as they can highlight the challenges that may lay ahead, such as preparing for climate change and managing emerging pandemic diseases, like the one we have just experienced.
The concept of antifragility is to gain from disorder: whereas most real estate companies struggle in a recession, a company with a strategy that enables it to thrive in a downturn would be antifragile. The nonlinearity can offer opportunities on how fragility can be detected, measured, and transformed. This antifragile concept can provide a blueprint for living in a world with extreme risk where an organisation recognises and embraces exposure to levels of variation and uncertainty and is prepared to manage the opportunities and so enhance comparative performance to competing organisations.
To look at this further, the classifications of known (K), unknown (u) and Unknowable (U) can be used to construct a framework to create a better understanding of uncertainty surrounding extreme unpredictable events. These KuU risk categories can form the platform for a three-stage real estate strategy as detailed in figure 1.
Figure 1: KuU events and real estate strategies