Effect of Location on Rental Value of Commercial Property
Chapter One
Objectives of the 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,
The objectives are 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
CHAPTER TWO
REVIEW OF LITERATURE
Conceptual review
Location 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 characteristics that influences house 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.
The impact of sport and leisure facilities, convenience of life and environmental quality on house prices
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. 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
RESEARCH METHODOLOGY
Sources of Data Collection
All relevant data needed for this study are basically sourced from the primary sources of data.
The Primary Source 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.
Research 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.
Population of the Study
This comprises of the individual members of the study population from whom relevant 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, Bayeku Housing and Ijeda respectively. Below is a table showing the breakdown of the population for the study. However, the total numbers of registered estate firms were 19 (Lagos State NIESV Directory, 2014).
CHAPTER FOUR
RESULTS AND DISCUSSION
Introduction
This chapter will provide information on demographic characteristics of the respondents, descriptive analysis of the identified location, its adequacy as well as the evaluation of location characteristics of the location areas were respectively covered in this chapter and its impact on the rental values. Information on the profile of current annual rental values of commercial properties in the category of one, two and large size buildings in the respective areas equally formed part of the chapter.
Multiple regression technique dominated the last item in the chapter of which the final results were analyzed to determine the impact of location characteristics housing on rental values of commercial properties in Ikorodu metropolis. The result of this were adopted to test the hypothesis of the study in order to established whether if there a significant relationship between location characteristics and rental values of commercial properties in the study area.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
Conclusion
From the foregoing result, it is laudable to draw up a conclusion with the assertion that the impact of the location characteristics on rental values of commercial properties in the study area cannot be over emphasized. In order words, the location characteristics are significantly vital to rental value determination of commercial properties in Ikorodu metropolis, Nigeria. The location characteristics such as the planned location, proximity to social services, proximity to economic activities, nature of the environment and most importantly proximity and adequacy of utilities and amenities in a particular location. In other words, sitting of commercial property in close proximity to accessibility to work place, public transportation, proximity to high quality cafes, CBD, sporting facilities among others have equally contributed immensely to the determination of commercial property rental values in Ikorodu metropolis. Location attributes on the other hand was measured in relation to availability of urban amenities, security and environmental quality and has made a very strong and unique contribution to the prediction of rental values of commercial houses in the study area. Evidently, the commercial location with more adequate utilities and close proximity to social services with complementarities with housing tend to command a higher rental value compared to the locations with less.
Recommendations
From the findings above on the major factors or attributes affecting the rental values of commercial properties in the study areas, it is worthy to also recommend 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 of 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 of employment, CBD and other services This will solve the problems associated with geographical locational disadvantages and also attract other private investors to invest in other outer or commuter areas.
- Government and other agencies saddled with the responsibility of infrastructuraldevelopment should undertake a massive infrastructural facilities development particularly in the high density commercial areas and improve on the number and quality of the existing amenities in the medium density areas of the metropolis. This action will attract investors in the housing sector to develop quality housing in the location and by so doing, the wide variations in the rental values can be closed drastically.
- Adequate provision of waste disposal facilities in every part of the metropolisespecially in the high density commercial locations where it is characterized with a high population and littering of waste. This will help in the reduction of littering in the area but this can be achieved when a taskforce is put in place to ensure compliance of individuals in the appropriate dumping of waste facilities In addition, this waste should be evacuated from the location regularly by Lagos state environmental protection 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 rental 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 Area Office, Lagos State, Nigeria.
- Ahlfeldt, G. M., & Maenning, W. (2007). The impact of sports Arenas on land values: Evidence from Berlin Hamburg contemporary Economic Discussion NO.3, ISBN 978-3-940369-29-1 University of Hamburg Chair for Economics policy, Hamburg.
- Aluko, O. (2011). The effects of location and location attributes on housing values inme tropolitan Lagos. Ethiopian Journal of Environmental Studies and Manage ment, 4(2), 69-82.
- Ankeli, A. I & Daban D. I. (2015). Housing Conditions And Commercial property Rental values in Ede, Nigeria.Conference of the International Journal of Arts And Sciences, 08 (01)53-61.
- Appraisal Institute (2001). The appraisal of Real Estate, USA.The Appraisal Institute.
- Asikhia, M. O. Eghagha, N. W., & Eyakwanor, A. A. (2016). Effect of Housing facilities on Rental values of Residntial properties in Benin City. Research Journal of Engineering and Environmental Science, 02(01) 162-169.