Tanzania

The office sector remains a tenants' market

Tenants maintain a dominant position, driven by an oversupply in the office sector. An example of a significant pipeline development in the country is the US$ 2bn Morocco Square Project by the National Housing Corporation (NHC), which is contributing nearly 50,000 sqm of additional space. Keenly aware of market challenges, landlords are flexible with lease terms, offering rent reductions and proactively renegotiating rents to safeguard occupancy levels, which currently stand at approximately 70%.

Monthly prime office rents of US$ 15 psm, while 12% lower than in 2020, are likely to be positively influenced by the country's improved economic prospects. According to the latest IMF forecasts, Tanzania is poised to record 6% GDP growth this year, outpacing neighbouring Kenya (5.3%) and Uganda (5.7%).

Heightened demand for prime warehouses

The current upswing in economic activity is boosting warehousing demand, particularly along Nyerere Road, Dar es Salaam’s prime industrial area. Despite this, however, an oversupply of warehousing has curbed rental growth. Indeed, monthly prime rents have remained stable at US$ 5 psm for the past four years.

Demand is poised to rise over the medium term, driven by recent offshore natural gas discoveries and a comprehensive slate of planned national infrastructure projects. The government's strategic focus on enhancing infrastructure is tied to the desire to boost FDI. The new US$ 1.9bn, 1,219km national standard gauge rail network is one of such examples evidencing the initiatives.

Expatriates boosting residential demand

The residential market, particularly in prime areas like Oyster Bay and Masaki (Peninsular), stand out as the best-performing areas, with rent in this location rising by 15% - 20%, over the last 2 years.

This surge in demand has also elevated prime rents in Dar es Salaam, which has experienced a 21% increase over the past five years. Monthly rents for three-bedroom apartments have risen from US$ 2,900 in 2019 to approximately US$ 3,500 at present.

Developers are capitalising on the demand by bringing forward a raft of new residential developments, particularly in and around Peninsular, such as the Manhattan Garden (98 units) and 711 NHC Project (320 units), both of which are expected to be completed by 2025.

Informal retail flourishing

Tanzania's retail landscape is characterised by an informal shopping culture, with an estimated 90% of food and beverage sales transpiring through traditional small stores, street vendors, and unregulated markets. Unsurprisingly, the retail market is predominantly under the sway of small-scale, primarily domestic retailers, a trend entrenched in long-standing consumer shopping habits that have hindered the flourishing of larger malls in the country.

The impending completion of Morocco Square and Dar Village, which collectively will introduce an excess of 65,000 sqm of additional retail space is expected to contribute to the ongoing oversupply of formalised retail space in the country.

Reflecting the subdued uptake of formal retail space, monthly prime rents have stagnated at US$ 18 psm, while occupancy rates have contracted currently at an average of 70% from 65% last year.

Still, our outlook for the country's retail market remains positive, underpinned by the combination of strong economic growth, diminishing inflation, and low rates of unemployment, which together will contribute to a rise in consumer spending, as well as confidence levels amongst businesses and investors.