Occupancy slumped by 16.7 per cent to 53.2 per cent in November, while the average daily rate (ADR) dropped by 1.8 per cent, according to global hospitality research firm STR.
"According to the HVS Hotel Valuation Index, demand for hotels in the country's most populous city (Dar es Salaam) has been sluggish in the market due to a cut in government conferences and increased taxes," STR said in a statement.
"Additionally, direct flights to Zanzibar from neighboring countries may also be a factor for a decline in overnight leisure demand in neighboring Dar es Salaam."
The government has ordered all its ministries and state-owned enterprises to cut seminars and conferences at hotels and instead hold all meetings inside boardrooms of government buildings as part of wider cost-cutting measures.
The STR analysts noted that supply for hotel services has grown by 6 per cent year-over-year for two consecutive months in Dar es Salaam. Prior to that jump, supply had remained nearly flat since early 2016.
Despite the overall drop in occupancy, the Dar es Salaam hotel market saw five nights with occupancy above 70 per cent, due in part to the 21st Autoexpo Africa conference held in the city last month.
"Tanzania has sustained high growth over the last decade averaging between 6 per cent to 7 per cent annual gross domestic product (GDP) growth. However, the recent cut in government conferences and increased taxes has led to a sluggish growth in room night demand," according to the HVS Hotel Valuation Index.
"The current President John Pombe Magufuli has prioritised efforts to clampdown on corruption, improve public administration, cut down on government spending and providing free education. While these efforts seem to be bearing fruit, his policies on increased taxation (which also includes an 18 per cent value added tax on tourism services) and regulation on foreign companies, especially the mining sector, has resulted in a reduction in foreign direct investment (FDI)."
The decline in business activity in Tanzania has resulted in the World Bank revising the country’s growth estimates downwards, said HVS.
"While the GDP growth in 2017 has been slower by half a percentage point as compared to 2016, it is still the highest in the East African Community for 2017," it said.
In 2017, hotel revenue per available room (RevPARs) in Dar es Salaam saw a double-digit decline, almost in equal part due to decrease in hotel occupancy and average room rates," it said.
"The average rate decline was also in part due to the weakening of the Tanzanian shilling as compared to the US dollar. Going forward, while brands such as Rotana, element, City Lodge are gearing to open hotels in the city, we anticipate a growth in accommodated room nights which would get absorbed by the new supply resulting in a stable outlook for Dar es Salaam."
Some hotel owners in Dar es Salaam said lower-than-expected tourist arrivals have also contributed to a decline in occupancy rates in the city.