Rising fuel prices will hit properties in South Africa – and keep people out of the office: FNB

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The cumulative increase in fuel prices has contributed significantly to overall consumer price inflation, and a further increase in June will keep that pressure going, said John Loos, real estate strategist at FNB Commercial Property Finance.

Although the Ministry of Energy has not announced the official price of gasoline for June 2022, data from the Central Energy Fund and the end of government interventions indicate that the cost of gasoline could increase by more than 4 rand/litre. This would push the country’s petrol price above R25/litre in June for both grades.

For many consumers, spending on fuel is hard to avoid, which means many need to reprioritize and likely cut back on non-essential spending more, as well as delaying “carry-over” low-frequency purchases, Loos said.

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“We believe this impact could be felt more in large super-regional and regional malls, which are more focused on such shopping, including entertainment, restaurants and clothing and footwear retail.

“Smaller convenience and neighborhood centers that focus more on essential foods and groceries are likely to feel this indirect impact of fuel inflation to a lesser extent.

“We believe continued increases in fuel prices are negative for an already struggling office real estate market. The office market is challenged by many underutilized spaces due to much higher work from home by compared to previous Covid-19 lockdowns.

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Now, with fuel prices spiraling sky-high, the FNB expects many commuters, who can work from home to an even greater extent, to get their fuel bills under control, Loos said.

“This may be an additional source of encouragement for some employers to reduce their office space requirements, if the success of the lockdown work-from-home experiment was not already encouraging enough. It is therefore an additional potential source of pressure on the office market.

He added that commercial real estate is interest rate sensitive, as fuel prices have led to overall inflation and therefore higher interest rates, and indirectly impact the containment of fuel-driven property purchases. credit via their impact on interest rates.

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“We expect selling activity in the commercial real estate market to begin to slow in the second half of 2022, following a recent period of strengthening, with continued rising interest rates being a key driver of this expected slowdown.

“The fourth sub-sector of commercial property that has been facing high fuel costs of late must surely be hospitality. , high oil prices are hurting holiday and business travel, and thus the demand for overnight accommodation.


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