Real estate business has come a long way

Real estate business has continued to witness positive changes. Tanzania’s commercial real estate sector is currently a tenants’ oriented market. Trend of the economy is putting smaller businesses and retailers under pressure forcing landlords to continue offering tenants discounts on rent.

New malls and office complexes remain at 35-45 percent occupancy levels as tenants shy away from the more expensive US Dollars-based rentals, or go and opt for ‘affordable spaces’ in the outskirts. Whereas most offices used to be situated in Masaki and Posta City Centre but are now relocated to residential areas in Mikocheni and Mbezi Beach.

Commercial real estate simply refers to any property that is used solely for business purposes and are leased out to provide a workspace rather than a residential space. It includes retailers of all kinds, office spaces, incubation centres, flexible work spaces, hotels, malls, restaurants and convenience stores.

The recent dynamics of the sector have made hospitality sector of commercial real estate which includes hotels, motels, resorts and other tourist or business accommodations attractive to many investors. 

Ownership of these properties is closely tied to the underlying business, so it’s important to understand the dynamics of the sector. This is the only segment of the sector that exhibit a somewhat solid performance, it can be attested by the wave of new hotels and face-lifting of existing facilities in Tanzania.

Commercial real estate attributes to higher economic growth, better quality of life for citizens and a more prosperous community.

The value of Tanzania’s properties accounted for 3.7 percent of the country’s GDP ($1.8 billion) in 2014, compared to $1 billion in 2009, representing an increase of 63 percent.

The increase is mostly driven by the increasing demand for urban accommodation and the fast-growing population. The development of properties is mostly focused on the commercial capital, Dar es Salaam, but also on other major urban centers such as Mwanza, Arusha and Mbeya, due to growth in agriculture, mining and tourism sectors.

Commercial properties have experienced a strong investment during the past seven years raising the commercial buildings supply in urban centers. It is estimated that the commercial sector is currently holding an excess supply of over 300,000 square meters of properties that are vacant.

But, the sector is currently faced with a number of challenges that can only be resolved through a 360 shift on the structure and operational system.

These challenges are; on one hand a sluggish economic growth and on the other hand the shift of physical spaces into virtual sites of economic productivity as a result of technological innovation.

Furthermore, overvaluation of properties and overpricing of rental fees is among the challenges that has resulted to commercial real estate properties being vacant for extensive periods.

High dollar rate per square metre, fixed spaces for rent and fixed periodic rent payment has also been instrumental in the decline of performance in the sector.

These challenges mean that commercial real estate developers are struggling to convert Tanzania’s resilient consumer demand into competitive rentals. This has resulted into constraint of income in the sector and depreciation in the value of the real estate stock causing the sector to exhibit an increase in number of white elephants or ghost projects.

To overcome existing challenges players in the commercial real estate should turn the focus to a growing, important but often neglected segment of the market: the country’s small and micro enterprises, and emergent entrepreneurs that form 95 percent of business in the country and account for 35 percent of the GDP.

The sector should also focus on placement of their activities in a knowledge-intensive economy so allowing development of smart cities and sharing economies. A number of projects following the trend are currently existing like Avic Town and Hamidu City in Kigamboni, Dar es Salaam.

With the current business trend, there will be a greater demand for shared space, flexible office work spaces and a mix of fixed and variable spaces from tenants. Regus.com are currently engaged in the shared space model.

ICT and online spaces should be put into consideration in developing commercial real estate. As a result of technological change and innovation, incubation centres, start-up innovation labs and flexible work spaces are a trend for small and micro SMEs. Costech, BUNI Hub and Kinu are examples of such spaces in Tanzania.

There is a strong need to revise the business plans for commercial real estate projects conceived in earlier during a more positive business environments and restructure them to fit the current market trend. The vast commercial real estate market of Tanzania, despite its challenges, is offering increasingly enticing prospects for property investors.

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