Effects of Inflation on the Rate of Returns of Commercial Real Estate Investment in South-South Geopolitical Zone of Nigeria

Abstract

Commercial real estate investment returns have now taken on a greater significance in the development of the economy of any nation. The aim of this study was to evaluate the effects of inflation on the rate of returns in the south-south geopolitical zone of Nigeria. In order to attain the stated aim, the following objectives were set; to examine the inflationary trend in the study area; to determine the rate of returns of commercial properties in the study area and to establish a relationship between the inflation rate and rate of returns of commercial properties in the study area. The research employed the survey design. The independent variable was the inflation rate while the dependent variable was the rate of returns. Both descriptive and inferential statistics were employed in the analysis of the data, with the help of the SPSS and Microsoft Excel software. Primary data for this research was obtained from Estate Surveyors and Valuers in the study area through questionnaire survey. The data comprising rental and capital values of commercial real estate was subsequently translated to returns using the Holding Period Returns formula. Similarly, secondary data about inflation rates for the period between 2014 and 2023 were collected from the Central Bank of Nigeria. The research adopted the stratified random sampling technique to divide the South-South geopolitical zone of Nigeria into six (6) strata: each stratum representing each state and the data used for the research were analysed using simple linear regression model. The research found out that there was a persistent year-to-year rise in the rate of inflation. The research also found out that the highest return rate was observed in Bayelsa in 2014 when the rate of inflation was the lowest at 8.05%. On the other hand, in 2022, the lowest return was recorded in Edo State as 10.20 when the inflation rate rose to 18.85%. The study also presented the result of a simple linear regression analysis conducted between the actual inflation rates and the rate of returns of each of the six states. The study concluded that there was a statistically significant relationship between inflation rate and rate of return of commercial properties in each of the six states constituting the south-south geopolitical zones of Nigeria. The investment information provided in this study has significant implications for both local and foreign investors desiring to invest in the Nigerian commercial real estate market.