CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

The basis for the existence and growth of urban areas is found in the gregarious nature of mankind and also in the cultural, economic andpolitical advantages that stem from the agglomeration or clustering together of people (Barlowe, 2009). From the standpoint of intensity ofuse, rent-paying capacity and land values, the areas occupied by central business districts in urban areas represent some of the mostvaluable lands (Lean & Goodall, 2011; Barlowe, 2009 and Harvey, 2010). In cities where the business has retained its attractiveness,economic strength and viability, the business is almost always found close to the hub of the city’s traffic and transportation system and atlocations both accessible and convenient to large numbers of people. This develops a possibility for high volumes of retail and othercommercial activities, which in turn enhances intensive land use practices, high rents and high land values (Lean & Goodall, 2011; Barlowe,2009; Harvey, 2010 & Ighalo, 2010). In other words, sites closer to the main business area often offer greatest opportunities for profitable useand these locations have the highest site values and command the highest rents. Thus, due to the business opportunities available to firmsat the area, there is reasonable bidding and counter-bidding between firms and operators for the choice of locations. This process oftenleads in commercial land use patterns in which office and retail spaces are allocated in concordance with the rent-paying capacities of thevarious operators. This pattern is rarely stable as new adjustments are always done, including rental adjustments. The primary basis of mostoffice rental studies as summarized by Sivitanides (2013) is that, rent differences in the commercial property market are engineered byexcess demand or excess supply, as measured by the deviation of the prevailing vacancy rate from a “natural” or “structural” vacancy rate.In addition, the results of evidence from previous empirical studies suggests that vacancy rate is a crucial determinant of office rentalperformance in cities (Hekman, 2013; Shilling et al., 2009; Glascock et al., 2011; Wurtzebach et al., 2011; Sivitanides, 2013; Hui & Yu, 2014;Boon & Higgins, 2007 & McCartney, 2012). It is on this premise that this study examines the determinants of vacancy rate in commercialproperties in Minna, Nigeria. According to Boon and Higgins (2007), rental value is a vital parameter for measuring real propertyperformance. It is also a key cost for tenants and an important source of income for the landlord. Major commercial property marketpartakers such as investors and developers mostly use rental value as an indicator to ascertain the viability of their real estate developmentand investment schemes. Based on this, knowledge of the nature and basic features of vacancy rate provides a better understanding of thefluctuations of the commercial property market. Also, indices of rental growth are mostly integrated into discounted cash flow analysis forthe evaluation of real property investments (Boon and Higgins, 2007). Thus, Nigeria real estate industry professionals needs betterknowledge of commercial property rental changes as well as vacancy rate which is the key determinants that influence commercialproperty rents in the country. However, the property market is one of the major aspects of the investment market. The commercial propertymarket is an important sector of the property market. Investors in the commercial property market expect return on their investments inthe form of rent (Barlowe, 2009; Hargitay and Yu, 2010; Boon and Higgins, 2007). Also, the commercial property market is characterized bysome fundamental concepts. 

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