Effect of Location on Rental Value of Commercial Property
Chapter One
Objectives of theย Study
The purpose of this study is to investigate the effects of location on commercial property values in the study region in order to determine the reasons for rental difference in the three areas chosen for the study,
Theย objectives areย to:
- To assess location differences in Ikorodu.
- To examine the current rental values of different classes of commercial properties in the study area
- To examine the level of impact of location on commercial rental values in the study
CHAPTERย TWO
REVIEWย OFย LITERATURE
ย Conceptual review
Locationย and real estate valuation
According to MacDonald & MacMillan (2007), it is impossible to separate location variables from the examination of the housing market in an urban area. Buildings and office/shops are complex commodities with a variety of attributes that are valuable to the consumer. The market is frequently defined by complex, incredibly resilient products, each of which is situated in a location with a variety of characteristics. Anthony (2012) defines site amenities as the essential attractions and services that make life convenient and comfortable for the locals. On the other hand, the qualities of the house and lot, as well as the neighborhood where the property is located, are reflected in the house price.
Although the price of the house is determined through a negotiation process between the buyer and seller, the transaction will only actually take place if the buyer submits a bid (MacDonald & MacMillan, 2007). Buyers frequently base their offers on a variety of criteria, but one that significantly affects their choice is location.
Given that numerous factors related to location have been identified by various researchers on housing and value to have a statistically significant impact on office/shop prices, the main goal of this section is to evaluate empirical literature on the location that determines house value. The following headings address how geographic amenities and disamenities affect office/shop pricing.
Location characteristicsย thatย influencesย houseย prices
This study looked at the location amenities that affect office/shop prices, such as recreational and sporting facilities, educational facilities nearby, mixed land uses, mountains, lakes, and oceans, gated communities with guards, freehold locations, and the impact of light rail transit systems on commercial property values.
ย Theย impactย ofย sportย andย leisureย facilities,ย convenienceย ofย lifeย andย environmentalย quality on houseย prices
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Numerous research on neighborhood amenities that affect office/shop value have been conducted. For instance, Chang & Lin (2012) used hierarchical linear modeling to examine the effect of location on housing price in Taipei, Taiwan. The study’s goal was to look into the connection between location and office/shop price. The study used three geographical factors as the explanatory variables: environmental quality, lifestyle convenience, and sport and recreation facilities.
The survey’s data came from a secondary source that was a 2006 survey of the condition of commercial houses conducted by Taiwan’s Ministry of Interior Affairs’ Agency of Construction and Planning. ย The information covered office/shops in 31 different places. A five-point Likert scale was employed to gauge how satisfied participants were with the study’s choice of location and housing attributes.
The study employs the HLM sub-models for variable explanation and analysis of empirical studies, which comprise the Null model, Random coefficient regression model, and Slope as outcome model.
The empirical findings show that there are significant variances in the average housing price across different localities. The outcome also showed that the effect of house attributes on the national average house price differs by region. The findings also imply that geographical factors moderate the effect of office/shop characteristics on house price.
However, the study used information gathered from secondary sources that was acquired six years before to the study. This might have an impact on the study’s findings because secondary data, particularly when acquired far in advance of the investigation, might be misleading. A persuasive conclusion cannot be justified by using only a small number of explanatory factors because this could result in omitted variable bias.
A prior study by Brown & Uyor (2004) used hierarchical modeling to examine the effects of geographical variables and housing characteristics on commercial property pricing. The macro level explanatory variable “time to travel down town” and the micro level explanatory variable “living area” were used to reflect the location and attributes of the residence, respectively.
The findings show that location has a major impact on office/shop prices. The findings also showed that location factors can reduce the impact of dwelling features on commercial property value.
Lee (2009) reported a different outcome in his analysis of the relationship between location public facilities and office/shop prices, which included two additional location-related variables. As explanatory factors, the convenience of living, sports, and leisure are added to the prior variable “time to go to downtown.”
CHAPTER THREE
RESEARCHย METHODOLOGY
ย Sourcesย ofย Dataย Collection
All relevant data needed for this study are basically sourced from the primary sources ofย data.
Theย Primaryย Sourceย of Data
All first-hand information obtained by the researcher during field research is referred to as the primary source of data collecting. The information obtained from this source is referred to as primary data. However, the primary data for this study comes from the rent payer or head of each family in order to fulfill its goal. This is accomplished by distributing questionnaires and conducting oral interviews with respondents in the study area.
Researchย Design
Depending on the nature and scope of the study, a researcher may choose from a variety of research designs, including descriptive, experimental, correlational, diagnostic, and explanatory designs. To establish a connection between a situation’s cause and effect, however, the experimental research methodology was used for this study’s purposes. The effect that the independent variable has on the dependent variable is seen in this causal research design. It is a very useful strategy for research design since it helps with the problem at hand by establishing the connection between the independent and dependent variables so that conclusions may be drawn.
Populationย ofย theย Study
This comprises of the individual members of the study population from whom relevantย information needed for this study is gotten. In this case, the sample elements for this
research are the occupants of commercial properties put up for rent in Imota, Bayekuย Housingย andย Ijedaย respectively.ย Belowย isย aย tableย showingย theย breakdown of the population for the study. However, the total numbers of registeredย estateย firms wereย 19 (Lagos Stateย NIESV Directory,ย 2014).
CHAPTER FOURย
RESULTSย ANDย DISCUSSION
Introduction
Thisย chapterย willย provideย informationย onย demographicย characteristicsย ofย theย respondents,ย descriptiveย analysisย ofย theย identifiedย location,ย itsย adequacyย asย wellย asย theย evaluationย ofย locationย characteristicsย ofย theย locationย areasย wereย respectively covered in this chapter and its impact on the rental values. Information onย the profile of currentย annual rental values of commercial properties inย the category ofย one,ย twoย andย large sizeย buildingsย inย theย respectiveย areasย equallyย formedย partย ofย theย chapter.
Multiple regression technique dominated the last item in the chapter of which the finalย results were analyzed to determine the impact of location characteristics housingย on rental values of commercial properties in Ikorodu metropolis. The result of this wereย adopted to test the hypothesis of the study in order to established whether if there aย significantย relationshipย betweenย locationย characteristicsย andย rentalย valuesย ofย commercial properties in the studyย area.
CHAPTERย FIVE
CONCLUSIONย AND RECOMMENDATIONS
ย Conclusion
From the foregoing result, it is laudable to draw up a conclusion with the assertion thatย the impact of the location characteristics on rental values of commercial propertiesย inย theย studyย areaย cannotย beย overย emphasized.ย Inย orderย words,ย theย locationย characteristicsย areย significantlyย vitalย toย rentalย valueย determinationย ofย commercial properties in Ikorodu metropolis, Nigeria. The location characteristics such as theย planned location, proximity to social services, proximity to economic activities,ย nature of the environment and most importantly proximity and adequacy of utilities andย amenities in a particularย location.ย Inย other words,ย sitting of commercial propertyย in close proximity to accessibility to work place, public transportation,ย proximity toย high quality cafes, CBD, sporting facilities among others have equally contributedย immenselyย toย theย determinationย ofย commercial propertyย rentalย valuesย inย Ikoroduย metropolis. Location attributes on the other hand was measured in relation toย availability of urban amenities, security and environmental quality and has made a veryย strong and unique contribution to the prediction of rental values of commercial houses inย the study area. Evidently,ย the commercialย locationย withย more adequate utilitiesย and close proximity to social services with complementarities with housing tend toย commandย aย higher rentalย value comparedย to the locations with less.
Recommendations
From the findings above on the major factors or attributes affecting the rentalย valuesย ofย commercial propertiesย inย theย studyย areas,ย itย isย worthyย toย alsoย recommendย that:
- Government or the major stakeholders in the built environment should embark on an urban renewal exercise especially in the high density areas; this will ensure a model city development with absence ofย ย For instance in developed countries, hardly will one notice classes of commercial zones in any town or city because every area is well developed with adequate provisions of standard amenities. Also, Housing investors should also be compelled to adhere strictly with development plans approved by the development control board of Lagos state to avoid any alteration in the cause of building development which may distort the master plan of the area.
- Adequate and affordable urban mass inter-city transportation services should beprovided to conveniently transmit people from their locations to places ofย employment,ย CBDย andย otherย servicesย ย Thisย willย solveย theย problemsย associatedย withย geographicalย locationalย disadvantagesย andย alsoย attractย otherย privateย investors to invest in otherย outerย or commuterย areas.
- Government and other agencies saddled with the responsibility of infrastructuraldevelopment should undertake a massive infrastructural facilities developmentย particularly in the high density commercial areas and improve on the number andย quality of the existing amenities in the medium density areas of the metropolis.ย This action will attract investors in the housing sector to develop quality housingย in the location and by so doing, the wide variations in the rental values canย beย closed drastically.
- Adequate provision of waste disposal facilities in every part of the metropolisespecially in the high density commercial locations where it is characterizedย with a high population and littering of waste. This will help in the reduction ofย littering in the area but this can be achieved when a taskforce is put in place toย ensure compliance of individuals in the appropriate dumping of waste facilitiesย In addition, this waste should be evacuated from the locationย regularlyย byย Lagos state environmental protectionย board.
- The variations in the rental values of commercial properties across the the different locations in Ikorodu should be adequately monitored and documented by the relevant authorities in order to ascertain the degree to which the location attributes influences the rentalย ย This will also guide the estate surveyors and valuers in the study area with relevant information for their valuation exercises.
REFERENCES
- Abuja Electricity Distribution Company. (2022) Marketting Department, Ikorodu Areaย Office,ย Lagos State, Nigeria.
- Ahlfeldt, G. M., & Maenning, W. (2007). The impact of sports Arenas on land values:ย Evidenceย fromย Berlinย Hamburgย contemporaryย Economicย Discussionย NO.3,ย ISBN 978-3-940369-29-1 University of Hamburg Chair for Economics policy,ย Hamburg.
- Aluko, O. (2011). The effects of location and location attributes on housing valuesย inme tropolitan Lagos. Ethiopian Journal of Environmental Studies and Manageย ment,ย 4(2), 69-82.
- Ankeli, A. I & Daban D. I. (2015). Housing Conditions And Commercial property Rentalย valuesย inย Ede,ย Nigeria.Conferenceย ofย theย Internationalย Journalย ofย Artsย Andย Sciences,ย 08ย (01)53-61.
- Appraisal Instituteย (2001).ย Theย appraisalย ofย Realย Estate,ย USA.Theย Appraisalย Institute.
- Asikhia,ย M.ย O.ย Eghagha,ย N.ย W.,ย &ย Eyakwanor,ย A.ย A.ย (2016).ย Effectย ofย Housingย facilitiesย onย Rentalย valuesย ofย Residntialย propertiesย inย Beninย City.ย Researchย Journalย of Engineering andย Environmental Science, 02(01)ย 162-169.
