ANALYSIS OF RENTAL VALUE OF COMMERCIALIZED WAREHOUSES IN LAGOS STATE, CASE STUDY OF OSHODI, LAGOS STATE

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Real estate trend is a generic term used to describe any consistent pattern or change in the general direction of the real estate industry, which must be based on fact and, over the course of time, causing a statistically noticeable pattern of change (Mueller, 1999). This phenomenon can be a result of the economy, a change in mortgage rates, consumer speculations or other fundamental and non-fundamental reasons. A trend can be downward or upward, horizontal or vertical depending on the series of related changes that are identified and projected into a plausible future. When such trends are based on rental values then the observation will be confined to any evident changes in rent patterns. Rents passing on properties are bound to be influenced variedly due to the heterogeneity of real estate. These factors range from intrinsic to extrinsic characteristics. They include closeness to high-rise office buildings (Thibodeau, 1990); accessibility (Ball, Lizieri and MacGregor, 1998); location, size, structural characteristics (Tay, Lau and Leung, 1999; McCluskey, Deddis, Lamont, & Borst, 2000); proximity to rail and park (Jensen and Durham, 2003); provision of balconies (Chau, Wong, , and Yiu, 2004); proximity to open space (Anderson and West, 2005); location of dams (Provencher, Sarakinos, and Meyer,. 2006); the situation of a new sport venue (Dehring, Depken, and Ward. 2007); distance from foreclosed properties (Lee, 2008); local historic designation (Ijla, 2008); the impact of inflation and real construction cost in the long-run while in the short-run increase in wealth rising from equity price (Leung, Chow and Han, 2008); provision of wall-fence round the building and the installation of burglary proof in all the windows (Olujimi and Bello, 2009); nearness to worship centres‟ (Iroham, Oloyede and Oluwunmi, 2011) amongst others. Specifically for commercial properties certain factors do abound as revealed in previous studies. Such factors include average floor area and number of rooms (Slade, 2000); changes in floor space and prime lending rates (Chin, 2003); size of sales facility (Kivilahti and Viitanen, 2006); neighborhood and physical characteristics (Marco, 2007). From these backdrops these requisite factors have to be continually evident for properties to keep commanding attractive rents that will generate an impressive trend/pattern from the stance of investors over a given period of time. Rising rents have been described as an attraction for rental real estate development as prospect of rental growth is also an important viability consideration. In addition rental growth rates combined with occupancy levels are being regarded as major long run determinants of property income (Mueller, 1999). Changes in rent invariably affect every type of real estate although in varying degrees. It appears that these changes are more evident in commercial properties. This perhaps is due to the fact that these properties are majorly built for business transactions and as the name implies could easily be prone to varying economic warp. Commercial property which could come in form of office space, malls, retail stores, shopping centers, banks amongst others has an important role in real estate markets. Its importance can be related to three different factors: First, as a factor of production, commercial property provides the space to house the activities of business and industry. Second, as a financial asset, commercial property constitutes a significant part within asset markets. Third, as an investment medium, it provides revenues to its holders based on value (Ustaoğlu, 2003). These characteristics make commercial property attractive for investors. Hence, any painstaking process in monitoring rental movements over the years is worth the while.

1.2. STATEMENT OF THE PROBLEM

Research findings by Antonio (2006) indicated that real estate accounts for a large share of wealth; about 33% and Gloss Domestic Product (GDP) of about 11% in the United States of America. Antonio further asserted that real estate is multifaceted. It is local and it is national. Prices may be high in summer and lower in winter. What sellers ask for may be higher in winter and lower in summer. It can be perception. It can also be supply versus demand. Real estate is a business, an emotion, a science and it is random. There are usually hundreds of forces at work, many unseen, culminating in a selling price for a house or a piece of land everywhere in the world including Nigeria. Brophy (2010) pointed out that real estate sellers try and sell for as much as they can and buyers try to buy for as little as they can. Agreements may work out from there and the final selling price is agreed upon. Real estate market is one that is characterized by almost predictable cycles of booms and busts (Smith, 2010). The former are the periods when the prices in market soar and almost inevitably, they are followed by other periods when the prices plummet. There are actually people who make a living out of these cycles. These are people whose study of the real estate property markets has brought them to a point where they can reliably tell when they are seeing a bust (when prices are very low), purchase property at that point and then sell it during the subsequent and virtually inevitable boom, making a big profit (Smith, 2010).

Real estate in Lagos state has been a major source of income for many but the unpredictability of the rental value of warehouses in Lagos has increased as a result of Lagos being a commercial hub, or being over populated where warehouses are scarce and thus its astronomical rise and other factors like times and seasons.

1.3   AIMS/OBJECTIVES OF THE STUDY

The major aim of the study is to analyze the rental value of commercialized warehouses in Lagos state

1. To identify various factors that responsible for trends in rental value of commercialized warehouses
2. To examine the rental value of commercialized warehouses in the study area.
3. To examine the impact of rental value on the commercialization of warehouses in Lagos state.
4. To identify various problems militating against the performance of commercialized warehouses in the study area.
5. To make recommendations and conclusion.

1.4. RESEARCH QUESTIONS

1. What are the various factors that responsible for trends in rental value of commercialized warehouses?
2. What are the rental values of commercialized warehouses in the study area?
3. What is the impact of rental value on the commercialization of warehouses in Lagos state?
4. What are various problems militating against the performance of commercialized warehouses in the study area?

1.5. RESEARCH HYPOTHESIS

H0: There is no impact of rental value on the commercialization of warehouses in Lagos state

H1: There is no impact of rental value on the commercialization of warehouses in Lagos state

1.6   SIGNIFICANCE OF THE STUDY

In ascribing any rental value to any set of property the future level of productivity of the property have become a thing of significance. So one of the things to which the developers are most sensitive is the feature level of rental. A small amount of the balance in prediction can have great effect in the success or failure of a project. This as a guide to viability of a development scheme, it is important that feature levels of income generated from the property must be highly granted.

In doing this, decision which affects the feature has to be taken into consideration. But before this can be done, it is necessary to make allowance for condition that would show ahead. Since current rental on investment as mainly aims at meeting feature needs of the owner.

Commercialzed ware houses in its nature is more or less dynamic thus a study of past trends of the property in the market would serve as a useful guidelines to the whole state be it investors. This enable public as well as private developer know how their scheme fit into future development of the sub-growing urban area as a whole.

The study of trends of property values most especially commercialzed ware houses is of great importance to the estate management profession. An understanding of trends on property value is great importance for their being assessment purpose or valuation.

This is because it provides a good guide and it can be used for projecting such things as revenue generation, either for the state or local government. An understanding of the trends in rental value of a property, particularly commercialzed ware houses, in most cases it can also be used to determines the capital value of the property in the nearest future and also the actual rent to be taken by the landlord, could be determined if an accurate trend can be got.

1.5   SCOPE OF THE STUDY

This study is restricted to the analysis of rental value on commercialized warehouses in Lagos state using the Oshodi axis of Lagos as a case study.

1.7   LIMITATION OF THE STUDY

The major problem we encountered was that Oshodi is a large area with many estate surveyor and value firm, location at relating short distance from each other as had to result to trekking from one firm to another and also some of the estate surveyors and values were not willing to answer the oral interview conducted because of their tight schedules.