RETAIL REAL ESTATE MARKET IN TANZANIA

The retail real estate market in Tanzania is dominated by private Tanzanian owners (citizens) and investors (foreigners), in collaboration with local investors (non-governmental institutions) and the Government of Tanzania. In Tanzania, the retail commercial real estate market has grown significantly and has seen the most development in Dar es Salaam the country’s economic hub and commercial capital. However, there is now notable growth in the market for shopping malls, retail shops, and commercial spaces in other areas, creating strong competition for Dar es Salaam. Cities such as Arusha, Mwanza, Dodoma, among others, are increasingly becoming competitive in this sector.

TYPES OF RETAIL REAL ESTATE BUILDINGS

1. SHOPPING MALLS.
Large and modern retail centers that house various businesses and cover a vast floor area (square meters).
Examples:
• Dar es Salaam: Mlimani City Mall, Aura Mall, Mkuki Mall, Peninsula Plaza, MNF Square, Morocco Square, etc.
• Arusha: AIM Mall, AICC Shopping Mall, Ngorongoro Towers, etc.
• Mwanza: Rock City Mall, etc.
• Dodoma: Capital City Mall, Shoppers, etc.

2. MARKETS & SHOPS WITHIN MARKET AREAS (Central Business District – CBD and market areas).
These buildings typically host a mix of wholesale and retail shops. A well-known commercial area with many shops is Kariakoo in Dar es Salaam. Other cities also have significant market areas and retail shops.

3. FORMAL SHOPS AND COMMERCIAL UNITS (Storefronts, Shoprites & Shopping Outlets).
These are commercial spaces or shop units formally owned or rented by individuals or businesses, usually for selling small-scale consumer goods.

4. PRIVATE NEIGHBORHOOD SHOPS AND KIOSKS (Privately Owned Shops).
These include small shops and kiosks owned by individuals, often located in residential neighborhoods.

KEY STAKEHOLDERS

Owners of retail real estate in Tanzania are divided into five main categories:

1. Local Investors ~84.2%
These are Tanzanian nationals who have invested in the retail real estate market across major cities, municipalities, districts, and smaller towns.

2. Government ~7%
Both the Central Government and Local Government Authorities have invested in retail commercial buildings, such as public markets.

3. Foreign Investors ~3.1%
These include companies or individuals from outside the country who have invested in the sector. Examples include: Splash Stores, Game, Choppies, Mr Price, Max, Spurr, Century Cinemax, Mlimani City Mall, Manix Stores, KFC, Subway, etc.

4. Non-Governmental Organizations, Local Companies & Special Groups ~4.4%
This group includes religious institutions, NGOs, and Tanzanian-owned companies that have invested in the retail real estate sector.

5. Political Parties ~1.3%
Some political parties in Tanzania have also invested in retail real estate markets across the country.

NOTE:
The retail real estate market in Tanzania is still among the most nascent (developing) sectors in many urban areas. Therefore, there remains a significant opportunity for growth and investment in various regions such as Dodoma, Morogoro, Kibaha, Mwanza, Mbeya, Iringa, Arusha, Moshi, Mtwara, Kigoma, Bukoba, Tanga, and others.

CONCLUSION

Since 2018, the retail real estate market has become increasingly profitable for investors, with many realizing returns within 36 months of securing tenants. This sector has outperformed both the office real estate market and the residential housing market in terms of profitability.

DRIVERS OF RETAIL REAL ESTATE MARKET GROWTH IN TANZANIA

1. Rapid Urbanization.
Tanzania has one of the highest urbanization rates in Africa around 5.0%, compared to the global average of 2.1%. This rapid growth of major cities, municipalities, district councils, and small towns is fueling demand for retail real estate and a variety of commercial activities.

2. Increased Consumerism.
Economic growth and the rise of the middle and upper-income classes have led to increased consumer spending. With an average GDP growth of 6.6% since 2012, demand for retail commercial properties is rising as more people have disposable income and seek access to modern retail spaces.

3. Foreign Investment.
There has been a surge in foreign direct investment (FDI) in Tanzania’s retail real estate sector. Investments in shopping malls, retail outlets, and global brand franchises such as Game, Splash Stores, KFC, Subway, Choppies, Mr Price, Max, Spurr, Century Cinemax, Manix Stores have accelerated the sector’s growth.

4. Population Growth and Housing Expansion.
Tanzania is among the African countries with a high population growth rate (3.1% per year). This rising population increases demand for retail infrastructure, especially in urban centers and along major roads connecting cities and districts. Informal and small businesses are also expanding, further boosting demand for commercial spaces.

5. Growth of E-Commerce.
Internet usage in Tanzania has grown from 12% in 2011 to over 36% in 2015, and currently, more than 22 million people use the internet. On average, 4 to 5 million people access social media daily. The increased use of smartphones and internet access is expanding e-commerce, which in turn is contributing to the growth of retail trade and the demand for commercial retail space.

NOTE:
The retail commercial real estate market in Tanzania is still emerging but is among the sectors with the highest profitability, according to the 2023 Knight Frank Market Updates report.

CONCLUSION

The growing number of Tanzanians living in urban areas and cities significantly contributes to the expansion of the retail real estate market, especially commercial shop units (storefronts). Statistics indicate that within the next ten years, the urban population will surpass the rural population, making this market more profitable than others such as the residential housing market (both primary and secondary), office buildings, industrial properties, and hospitality and entertainment facilities.

CHALLENGES FACING THE RETAIL REAL ESTATE SECTOR IN TANZANIA

1. Government Plan to Build Markets (Central Market Construction).
The construction of central markets by local governments in collaboration with the central government has had mixed effects on the retail real estate sector. For investors and private owners of retail commercial buildings, it has posed a challenge, as many have lost tenants due to traders relocating to newly constructed public markets that offer more affordable space. However, this initiative has been beneficial to small entrepreneurs, providing them with dedicated, accessible spaces to run their businesses. As a result, retail property investors are now required to conduct thorough market research to identify locations with high customer traffic before committing to development.

2. Competition Among Investors and Developers.
The growth of the retail commercial real estate market in Tanzania, especially in major cities like Dar es Salaam, Arusha, Mwanza, Dodoma, Mbeya, and Tanga, has led to increased competition among investors and property developers. As a result, some investors struggle to secure tenants due to various factors such as;
• High rental prices,
• Poor building quality,
• Lack of security in the area,
• Unattractive building design,
• Limited access to social services (eg; water, electricity, etc).
This competitive environment forces investors to improve their efficiency and conduct proper feasibility studies before investing.

3. Government Regulations.
To address the issue of unplanned and unauthorized constructions, the government has increased oversight of retail property development particularly buildings that do not comply with urban planning regulations. Some of the challenges include properties built too close to or within road reserves, structures located in areas without proper road infrastructure, and buildings that lack formal planning approval. As a result, before constructing shops or commercial units, developers must now strictly adhere to approved urban planning layouts, which are recognized by authorities such as TARURA and TANROADS. Failure to comply may lead to demolition of the structures or ineligibility for compensation in case of government development projects.

4. Poor Construction Quality and Weak Buildings.
The construction of retail commercial buildings in Tanzania is often done with low standards. This leads to cracks appearing just a few months after completion and the buildings becoming damaged within a short time. As a result, repairs and renovations are carried out frequently. Tenants also become concerned about the safety of such weak buildings, which creates fear and hesitation in renting the spaces.

CONCLUSION

The retail real estate market in Tanzania faces various challenges, but these have not halted its growth. The sector continues to expand steadily. However, to ensure that investments in retail buildings remain profitable, there are several key factors that must be prioritized, including strategic location selection, compliance with urban planning and government regulations, high construction standards, competitive rental pricing, and ensuring security and access to essential services. By addressing these areas, investors can maximize returns and contribute to the sustainable development of Tanzania’s retail real estate market.