THE COMMERCIAL- OFFICE BUILDINGS MARKET IN TANZANIA

THE OFFICE BUILDING MARKET

This market involves high-rise buildings, commonly known as skyscrapers. In TANZANIA, the city of Dar es Salaam leads in having the highest number of tall office buildings. Currently, there is growing competition from:

• Dodoma
• Arusha
• Mwanza
• Mbeya

Additionally, cities such as Tanga, Iringa, Morogoro, Moshi, and others also have tall office buildings.

KEY PLAYERS/MAIN INVESTORS IN THE OFFICE AND COMMERCIAL BUILDING MARKET – TANZANIA

The office and commercial building market in Tanzania is gradually growing, especially in major cities such as Dar es Salaam, Arusha, Mwanza, Zanzibar, Dodoma, Mbeya, and others.

The main stakeholders (investors) in high-rise buildings/skyscrapers are categorized into the following groups:

FIRST GROUP: SOCIAL SECURITY FUNDS

In Tanzania, social security funds have played a significant role in investing in the construction of office and commercial buildings (including skyscrapers and other types of buildings). Examples include:

• NSSF (National Social Security Fund) – This fund has constructed numerous office buildings in various locations as part of its investment strategy in land, real estate, and other non-movable assets.
• PSSSF (Public Service Social Security Fund) – This is a merger of former funds such as LAPF, GEPF, and PSPF. These pension funds have historically invested, and continue to invest, in the construction of various buildings, particularly office spaces. This is in line with directives from the Bank of Tanzania (BoT), which recommends that 30% of their income be invested in the real estate sector.

SECOND GROUP: FOREIGN INVESTORS

Investment in office buildings (skyscrapers) has also been driven by foreign investors, either as individuals or through companies.

• Individual Developers – These are private individuals who have come to Tanzania and successfully developed many office buildings. Countries from which these investors originate include Kenya, South Africa, the United States (US), the United Kingdom (UK), India, and the Netherlands. Others include Botswana, Kuwait, Oman, and the United Arab Emirates (UAE), among others.
• Private Companies – Various private companies have invested in the construction of office buildings, especially in Dar es Salaam, Zanzibar, and Arusha. Additionally, these companies have played a major role in property management and real estate asset oversight. Notable examples of such companies include Knight Frank, Cytonn Real Estate, Ernst & Young, among others.

THIRD GROUP: LOCAL INVESTORS (Nationals Investment)

• A. High Net Worth and Upper-Class Individuals – These are wealthy Tanzanians who have invested in the construction of office buildings in various locations across the country.
• B. Special Groups and Individuals – These include religious, social, and economic groups (such as banks, SACCOS, the ruling party CCM, etc.), as well as community cooperatives and individual investors. These groups have constructed office buildings in different parts of the country.

NOTE

The office building market requires substantial capital and high-level management to ensure that the buildings generate profit making it a capital-intensive investment. When this type of investment is undertaken by a company, it tends to be more profitable compared to individual investors. This is mainly due to the advantage of structured and professional management.

CONCLUSION

The city of Dar es Salaam will continue to lead the market for high-rise office buildings. However, in the next ten years, its main competitor is expected to be the city of Dodoma. You can invest in this market, as it still offers significant investment opportunities especially in various cities and urban centers across the country.

CHALLENGES HINDERING THE GROWTH OF THE OFFICE BUILDING SECTOR IN TANZANIA

The market for high-rise office buildings faces several challenges, leading to a slower growth rate compared to other markets such as residential housing or retail property. The following are among the challenges facing the development of office building market in Tanzania.

CHALLENGE #1: HIGH CONSTRUCTION/ACQUISITION COSTS

Office buildings are expensive to construct or acquire. The cost of building or purchasing such properties is significantly high, and only a few individuals or companies can afford to own them. For example, the construction of large skyscrapers requires substantial capital investment something that many Tanzanians cannot afford. This limits the number of local investors in the sector.

CHALLENGE #2: HIGH RENTAL RATES

Office buildings often come with high rental costs, which discourage many potential tenants and results in low occupancy rates leading to reduced income and profitability for landlords. For instance, in 2022 and 2023, the average rental rate for office space in Dar es Salaam (Posta area) was around USD 19.1 per square meter, compared to USD 9.75 in Nairobi (Kenya) and USD 15 in Kampala (Uganda). This pricing gap makes cities like Nairobi more attractive to international tenants such as foreign embassies, United Nations agencies, and large corporations, drawing them away from the Tanzanian market.

CHALLENGE #3: GEOLOGY AND NATURE OF THE AREA

High-rise buildings (skyscrapers) in East Africa can only be constructed in a limited number of locations due to geological constraints particularly the presence of the Great Rift Valley. Cities located near or within the Rift Valley are often restricted from constructing tall buildings due to the risk of earthquakes and the potential damage they can cause. This geological limitation reduces the number of suitable areas for skyscraper development, thereby hindering the growth of the office building sector in those regions.

CHALLENGE #4: POOR CONSTRUCTION QUALITY AND URBAN PLANNING (Improper Building & Zoning)

There have been many reported cases of building collapses in Tanzania, mostly due to poor construction practices such as failure to follow proper architectural and engineering standards, or the use of substandard building materials. These incidents result in significant financial losses. The collapse of buildings creates fear among potential tenants, leading to low occupancy rates in some office buildings due to safety concerns. Additionally, urban planning in many major cities across the country is still underdeveloped or poorly implemented, which poses a challenge for sustainable high-rise development and proper zoning of commercial spaces.

NOTE

The demand for Grade A and Grade B office buildings is high in major and strategic cities across the country. These premium and mid-level office spaces are especially sought after by corporate organizations, government institutions, NGOs, and international firms operating in key urban centers.

CONCLUSION

Both major and smaller cities require proper urban planning to ensure that the construction of high-rise buildings enhances the aesthetic and functional appeal of urban areas similar to leading global cities such as New York, Tokyo, London, Johannesburg, Mumbai, Shanghai, Singapore, and Dubai. A well-designed and visible skyline contributes significantly to the beauty and identity of a city.

GROWTH DRIVERS OF THE OFFICE BUILDING MARKET IN TANZANIA

DRIVER #1: STABLE ECONOMIC GROWTH

Tanzania is among the few Sub-Saharan African countries experiencing sustained economic growth averaging 6.6% since 2012. This growth is supported by political stability, peace, and a favorable investment climate backed by business-friendly policies. These conditions encourage investment in real estate, particularly office buildings.

DRIVER #2: HIGH FOREIGN DIRECT INVESTMENT (FDI)

According to Ernst & Young (EY), Tanzania has consistently attracted the highest FDI inflows in East Africa between 2016 and 2022, receiving an average of USD 1.4 billion annually, compared to USD 1.1 billion for Kenya and USD 541 million for Uganda. This growth in FDI is largely attributed to expansion in key sectors such as telecommunications, manufacturing, energy, transport infrastructure, and natural gas exploration. As a result, the demand for Grade A and B office spaces by foreign investors is increasing.

DRIVER #3: GROWTH OF SMEs AND THE PRIVATE SECTOR

The rapid expansion of Small and Medium Enterprises (SMEs) and the broader private sector particularly in technology, telecommunications, finance, and manufacturing has significantly increased the demand for office spaces. According to the World Bank, Tanzania has over 35 million active SMEs, including individual entrepreneurs and companies, contributing around 27% of the country’s GDP. Access to affordable financing from institutions like the African Development Bank (AfDB) and other development partners’ further supports private sector growth and drives demand for office buildings.

DRIVER #4: INFRASTRUCTURE DEVELOPMENT

The growth of robust infrastructure including roads, railways, airports, and ports has greatly improved accessibility and logistics, making it easier to transport materials and access key markets. Cities such as Dar es Salaam, Mwanza, Arusha, Tanga, Mbeya, Mtwara, and Kigoma have become more connected to the rest of the country, attracting both local and foreign investment in office buildings.

DRIVER #5: INVESTMENT BY DOMESTIC SOCIAL SECURITY FUNDS

Local social security funds such as the National Social Security Fund (NSSF) and the Public Service Social Security Fund (PSSSF) (formed through the merger of LAPF, GEPF, and PSPF) have been major drivers of office building development. These funds have heavily invested in office buildings, especially in major cities like Dar es Salaam, Mwanza, Arusha, and Tanga. Their involvement helps lower rental costs for public offices, offers competition to private developers, and stabilizes the market by offering affordable rental rates for tenants.

NOTE

Foreign Direct Investment (FDI) and the growth of Small and Medium Enterprises (SMEs) along with the establishment of various companies are the key drivers behind the increasing demand for office buildings in Tanzania. As more businesses are launched and foreign capital flows into the country, the need for modern, well-located office spaces continues to rise especially in major urban and commercial centers.

CONCLUSION

Investment in office buildings and high rise structures requires substantial capital and extensive management. Moreover, it is easier to attract clients(tenants) in large cities than in smaller towns, hence it is important to CHOOSE THE MARKET wisely.