Analyzing the Relationship between Interest Rate Volatility and Commercial Real Estate Investment Rate of Returns in Uyo, Akwa Ibom State, Nigeria
Keywords:
Analyzing, Commercial Real Estate, Interest Rate, Rate of Returns, VolatilityAbstract
This study investigates the effect of interest rate volatility on commercial real estate investment returns in Uyo from 2008 to 2022. Despite escalating property demands, the impact of interest rate volatility on real estate investments is often overlooked by investors. Previous research on residential real estate indicated a positive correlation between interest rate volatility and returns but lacked adequate matching pace between returns and interest rate increases. While acknowledging the burgeoning demand in commercial real estate and Uyo's emergence as a real estate market, this study seeks to fill the gap by examining interest rate effects on commercial properties. To achieve this, the rate of returns of 300 commercial properties were computed. The study compares returns on shops and offices, tracks interest rate fluctuations, and conducts an EGARCH analysis to explore volatility impacts. The analysis of interest rates from 2008 to 2022 revealed a tumultuous macroeconomic environment, with substantial spikes and trends, notably during economic recessions and the COVID-19 pandemic. The trend analysis indicated steady growth in commercial property returns, punctuated by downturns associated with economic crises. The results of the EGARCH model suggested the existence of volatility in commercial real estate returns due to interest rate fluctuations. However, the magnitude of this volatility was statistically insignificant, indicating a low impact on investment returns. In conclusion, both interest rates and commercial real estate returns exhibited volatility but showcased a positive trend over the study period. Despite interest rate volatility, its direct effect on returns remained statistically insignificant. The study recommends portfolio diversification, continuous monitoring of economic indicators, further research on factors affecting volatility, and governmental measures to control interest rate spikes to aid informed decision-making for real estate investors.