Retail business brings highest returns to Tanzania’s Central Business District

Real estate in Tanzania is booming as the retail sector brings the highest returns to the commercial capital of Dar es Salaam, said investment firm-Cytonn.

Cytonn revealed that the retail sector with average rental yields of 9.4 percent, led other sectors as Masaki and Upanga regions offered the highest retail yields to investors with 10.9 percent, according to its report titled “Real Estate Performance Summary 2018-Dar es Salaam.”

The retail sector’s performance is as a result of the high demand for retail space by the high upper mid-end populations and expatriates residing in the Dar es Salaam.

With Tanzania’s formal retail activity centered in the country’s Central Business District (CBD), Dar es Salaam, congestion in the region prior to the time the survey was carried out (2018 Q1), made businesses consider moving to the outskirts of the city. The CBD’s retail stock stands at 153,000 square metres (m2) with the average rent of the sector at $20/m2 per month and asking price at $2,200/m2.

Cytonn Investment report noted that the retail sector has grown due to positive demographic dividends, the growth of e-commerce and increased consumerism from the expanding middle class, as well as increased interest from foreign players.

Commercial office sector follows the retail sector with rental yields of 6.4 percent, as there has been steady growth in terms of supply. Office stock in Dar es Salaam stands at approximately 350,000 – 450,000 m2 with another 100,000 – 150,000m2 expected to be delivered in 2018 – 2019, the report said.

“Commercial office supply growth is propelled by infrastructural development in key regions around the city, a stable economic growth and continued entry of multinational firms into the country and the budding small and medium enterprises industry especially in the manufacturing, financial and telecommunication industries,” the report stated.

Though the residential sector comes third with a 5.2 percent return, subdued performance in the sector for the past two-years, especially in the high and mid-end segments have continued to record negative price growth, the study revealed. The report attributed the subdued performance to tight liquidity, slow credit growth in key regions in the city.

On a positive side, the low-end segment of the residential sector is said to have the best performance with an annual uptake of 53.7 percent and average total returns to investors of 5.2 percent. The sector is dominated by individual home builders and the public sector either through the National Housing Corporation or the Tanzania Building Agency (TBA) who cater for Tanzanians or government employees.

The retail, commercial and residential sectors have an occupancy rate of 87.1 percent, 72.1 percent, and 79.5 percent respectively.