ASSESSMENT OF VACANCY AND OCCUPANCY RATES OF RESIDENTIAL PROPERTY

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ASSESSMENT OF VACANCY AND OCCUPANCY RATES OF RESIDENTIAL PROPERTY

ABSTRACT

This study assess vacancy and occupancy rates of residential property in Tammah, Nasarawa town. The specific objectives of this are to ascertain the extent of vacancy of properties in the Nasarawa town, to evaluate the causes of vacancy of properties and to examine the implication of vacancy of occupancy rate to property investment market in Nasarawa town. The research adopted the survey design which offers the opportunity to gather information through the use of questionnaires, personal interview and observation. A Sample size of 143 respondents was using which  was drawn from landlords and estate surveyors and valuers residents in Tammah. A structured questionnaire was administered to the respondents to gather relevant data for the study. Data were presented and analysed using simple statistical tools such as tables and percentage. The study revealed that the housing stock in Nasarawa is very adequate and that the extent of vacancy and occupancy rates of property is on the positive side. The study also shows that the vacancy and occupancy rate can affect the return on property investment. Finally, the researcher recommend that property investors should invest more in Nasarawa real estate market since the market has a positive indicator of making higher return on investments as it exhibited low vacancy rate and higher occupancy rate and that the investors and property developers should be very conversant with the forces of demand and supply of the real estate market so as to make investment decision that will not adversely affect their investments.

Key words: Vacancy rate, occupancy rates, Residential Property

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

A vacancy rate serves as an important indicator of the health of a real estate market. But we cannot draw sound inferences about a market just by observing the rate alone because many factors contribute to a vacancy rate. The same rate may tell different stories, and different rates may tell the same story. The vacancy rate is the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied. High vacancy rates indicate that a property is not renting well while low vacancy rates can point to strong rental sales (Smith, 2015).

The vacancy rate is calculated by taking the number of vacant units, multiplying that number by 100, and dividing that result by the total number of units. The vacancy rate and occupancy rate should add up to 100%.In real estate, the vacancy rate most often represents units that are vacant and ready to be rented, units that have been turned off upon the exit of a tenant, and units that are not currently rentable because they are in need of repairs or renovations. A property owner can use vacancy rates as a metric for analysis. Changes in the percentage of vacant units versus occupied units, the length of time occupied units are remaining active, or other rental conditions can provide guidance regarding how competitive a property owner has made the property. If a property owner is charging significantly more or less than the rest of the rental market, this may be reflected in the overall vacancy rates. It can also provide information regarding the effects of price changes or advertising on unit occupancy.

While vacancy rates are commonly used to assess an individual property’s performance, such as a hotel monitoring its nightly vacancy rate, aggregate vacancy rates are also used as economic indicators of a real estate market’s overall health. Many firms servicing the residential and commercial real estate space gauge the strength of the overall industry using metrics such as vacancy rates, rental rates and construction activity. According to the natural rate hypothesis, fluctuations in apartment rents are driven by deviations in the vacancy rate from equilibrium or “natural” levels. One reason to estimate natural vacancy rates is to confirm this hypothesis. Beyond that, however, estimates of the natural vacancy rate for a rental housing market provide information that is potentially useful for investors, lenders and other real estate professionals. Comparing the natural rate at a point in time to the actual vacancy rate provides some indication of future rent movements in that market. In addition to its effect on the movement of rents, the level of the vacancy rate has direct implications for the return on property investment. In long-run equilibrium, the lower the natural vacancy rate, the greater the amount of rent generated by a given rental property, everything else held constant. If the natural vacancy rate declines over time, the return on rental property investment will rise, ceteris paribus.

Housing markets are often modeled as a series of separate but related submarkets, with differing supply and demand conditions in each. In the case of a rental market, there may be separate submarkets for different apartment types (one-bedroom, two-bedroom, etc.), and for different geographic locations. If submarkets exist, it is possible that natural vacancy rates will vary by submarket. In that case, information on natural vacancy rates is made more useful if available at the submarket level.

Empirical support for the existence of a natural vacancy rate in rental housing dates back to Smith (2015). Since then, a number of studies have focused on variations in the natural rate across both space and time. For example, Gabriel and Nothaft (2018) provide evidence of substantial variation across major U.S. metropolitan areas. In a more recent paper, Gabriel and Nothaft (2018) find the duration and incidence of vacancies, and the natural vacancy rate, to vary across metropolitan areas with a number of factors including housing costs, heterogeneity of the housing stock, tenant mobility, and population growth. This has necessitated the need to carry out an assessment of the impact of vacancy and occupancy rate on residential property in Nasarawa town; a case study of Tammah. 

1.2       Statement of the Problem

The vacancy rate is the fraction of rental properties not let at a point in time. This captures pressures in the residential property investment market. It becomes important to understand the balance between supply and demand, future pressures on rental prices and the typical duration of vacancy for a landlord’s budgeting purposes. The relationship between the vacancy rate and the housing production rate is expected to be negative as well. If the vacancy rate is high, the supply of residential property will be higher than the demand for residential property, which means that the property prices are stable or decreasing. Consequently, developers won’t have much stimulus to engage in residential property development and the housing production rate will be relatively low. This study seeks to assess the impact of vacancies and occupancy rate on residential property in Nasarawa town with particular reference to Tammah.

1.3       Aim and Objectives of the Study

The aim of this project is assess the impact of vacancies and occupancy rates on residential property in Nasarawa town.

The specific objectives of this are as follows:

1. To  identify the vacancies rate of residential property in Nasarawa
2. To ascertain the extent of vacancies rate of residential property in Nasarawa
3. To examine the causes of vacancies of residential properties in the study area
4. To assess the impact of vacancies and occupancy rates on residential property in the study area.

1.4       Research Questions

            The following research questions will serve as a guide to the researcher:

1. What is the vacancies rate of residential property in Nasarawa
2. To what extent are vacancies rates of residential properties in Nasarawa town?
3. What are the causes of vacancy of properties in the study area
4. What are the impact of vacancies and occupancy rates to residential property in the study area?

1.5       Significance of the Study

The findings of this research “Assessment of the impact of vacancy and occupancy rate on residential property in Nasarawa Town” will serve as a guide for investors to be able to make reliable investment decision that will ensure high return on investment.

The result of this study will serve as a guide to other researchers who are interested in further research into the impact of vacancy and occupancy rate on residential property investment market in Nasarawa and Nigeria at large.

1.6       Scope of the Study

The scope of this study covers the assessment of vacancy and occupancy rate on residential property in Tammah. The study is further limited to both side of Tammah that is, from Federal Polytechnic Nasarawa Junction to overhead tank and from Federal Polytechnic Nasarawa Junction to Polytechnic Staff School.

1.7       Operational Definition of Terms

Vacancy: Dictionary.com define vacancy as the state or condition of being vacant or unoccupied; emptiness.

Occupancy Rate: A measurement expressed as a percentage of the total amount of occupied space divided by the total amount of existing inventory. Occupied space is defined as space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant.

Vacant Space: Vacant space is defined as space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available.

Percent Leased Rate: A measurement expressed as a percentage of the total amount of leased space divided by the total amount of existing inventory. Leased space is defined as space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease.

Investment: An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.

Real Estate: Real estate is the property, land, buildings, air rights above the land and underground rights below the land. The term real estate means real, or physical, property.

Property: In common law, real property (immovable property) is the combination of interests in land and improvements thereto, and personal property is interest in movable property. Real property rights are rights relating to the land.

Investor: An investor is a person that allocates capital with the expectation of a future financial return. Types of investments include: equity, debt securities, real estate, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc.

Availability Rate: A measurement expressed as a percentage of the total amount of available space divided by the total amount of existing inventory. Available space is defined as the total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date, although it excludes space available in proposed buildings.

1.8       The Study Area

Nasarawa Emirate in Nasarawa State is located in the Central region of Nigeria. It is flanked by Keffi and the Federal Capital to the North. To the South, it is bounded by Benue River and to the west, it bordered the present Gadabuka and Toto Local government area which are of course, part of the Emirate. To the East, it is bordered by Doma, Lafia and Keana Local Government Areas all of Nasarawa State.

The founding of Nasarawa Emirate in 1835 AD was the consequence of palace tussle that arose in Keffi between Umani Makama Dogo then Madaki of Keffi and Jibrilu, son of Abdu Zanga (first Emir of Keffi).

 On the sick bed of Abdu Zanga, He gathered his brothers and sons and told them to appoint Umaru Makama Dogo as the Emir of Keffi which was never realized after the death of Zanga due to the betrayal to one Albarka. However, Makama Dogo was advised to move Westward of Keffi where the Kwato (Igbira) resides, fought then and established his own kingdom but he kicked against the idea and moved Yankardi, where he camped about ten kilometer South of Keffi.

Makama left his sons Ahmadu Manman Galadima and Manman Sani in Keffi as a flash back. He later left Yankardi where he arrived at a place occupied by Bassa speaking people called TAMMAH, met Bagobiri known as Kasimau, who assisted him in the establishment of a kingdom called Nasarawa (meaning victorious). Makama Dogo fought many wars in the course of his Islamization, fought Afo speaking people, conquered Ubbe, Usheni, Agwadama, Itta and Gwaffa.

Makama Dogo also conquered Panda due to some misunderstanding between him and Ohimege (the ruler of Panda). Makama Dogo fought the people of Toto (Igbira people) because of the combination of Islam and traditional way of worship by the people. After fighting other kingdoms like Dogo, Agaza and Udeni, Umaru told Madaki Ahmadu his eldest son to continue leadership after his death and should please be buried in Nasarawa town.

Physical Characteristics: The major things considered under physical characteristics of Nasarawa are, geographical location, temperature, rainfall, geology, wind, vegetation, humidity, soil.    

Temperature: The temperatures are generally high during the day, particularly between the months of March and April. The main monthly temperatures in the state range between 20⁰C and 34⁰C with the hottest months being March/April and the coolest months being December/January.

Rainfall: The study area experience dry season without or little’s rainfall from November to March of about 95mm, which is wet season is from April to October of about 1.30mm,

Vegetation: Nasarawa is situated in the Benue valley between the Benue river and Jos Plateau. This area lies within the part of southern guinea savannah. The vegetation of Nasarawa has, to a large extent resulted from extensive agricultural use of the land, the predominant vegetation type is partly savannah which is characterized by a discontinuous canopy, shrubs and grasses many areas are affected by man through bush burning during the dry season. Among the common trees are oil bean trees, locust bean free and isoberline trees.

Relative Humidity: The relative humidity is the measurement of deepness of the atmosphere which varies from place to place and different time of the day. The level of humidity in Nasarawa state in January is quite less that 40% which rises as from February to July to about 88%. By April when the steady rain commences it will be about 75% by August when the inter-tropical discontinuity is at it northern part, must position of the entire state will experience tropical marine wind and continues till December.   

Soil: The major soil units of Nasarawa belong to the category of oxisols or tropical ferruginous soils. The soils are derived mainly from the basement complex and old sedimentary rocks. Lateritic crust occurs in extensive areas on the plains while hydro orphic soils (limbic incept sols) occur along the flood plains of major rivers (Nyangba, 1995).

Socio-Economic Characteristics: Nasarawa main economic activity is agriculture; cash crop, such as yam, cassava and egusi (melon). Production of minerals such as salt is also another main economic activity of people in the state; Nasarawa produces a large proportion of the salt consumed in the country.

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