Rental Value Trends in Commercial Real Estate Investments in Tanzania

Abstract

Real estate investment provides substantial diversification benefits for pension funds and other investors in the short to medium term, against all odds of unpredictable shock waves of inflation rates and frail GDP growth. Property investors seeking investment in Tanzania today are scared by high inflation that stagnates growth of incomes from investments. The aim of this paper is to examine the rental values of five selected commercial properties owned by two pension funds in Tanzania over a period of six years from 2003 to 2009. This paper traces the historical trend of rental value movements over time in relation to economic indicators, inflation and GDP, to provide a general view of the property market performance. The relationships of the rents with the key economic indicators are gauged through Pearson correlation coefficient, ANOVA, regression analysis and Granger causality tests. The findings of this paper reveal that rents from commercial properties are now stable and are expected to remain stable or marginally under pressure in the short to medium term, thus benefiting both domestic and international investors. Investors are assured that the much feared inflation and sluggish GDP growth have little effect on rental value trends. The steady rental values are a real incentive to the available investment opportunities in commercial buildings