Fuel price increase to hit property in South Africa – and stop people going into the office: FNB

The cumulative fuel price increase has added significantly to overall consumer price inflation, and a further increase in June will sustain this pressure, says John Loos, property sector strategist at FNB Commercial Property Finance.

While the Department of Energy has not announced the official petrol price for June 2022, data from the Central Energy Fund and the end of government interventions indicate the cost of petrol could increase by more than R4/litre. This would push the country’s petrol price above R25/litre in June for both grades.

For many consumers, fuel spending is difficult to avoid, meaning that many have to reprioritise their expenditures and likely reduce more non-essential spending items, as well as delay ‘postpone-able’ low-frequency purchases, Loos said.

“We believe that this impact could be felt more on larger super-regional and regional shopping centres, which are more significantly focused on such purchases, including entertainment, eating out and clothing and footwear retail.

“Smaller convenience and neighbourhood centres focused more heavily on essential food and grocery shopping are likely to feel this indirect impact of fuel inflation to a lesser degree.

“We believe that ongoing fuel price increases are a negative for an already-battling office property market. The office market is challenged by a lot of underutilised space due to a far higher working from home level compared to prior Covid-19 lockdowns.”

Now, as fuel prices become exorbitant, FNB expects many commuters, who are able to work from home to an even greater extent to contain their fuel bills, Loos said.

“This can be an additional source of encouragement to certain employers to reduce their office space needs, if the success of the lockdown work from home ‘experiment’ wasn’t enough encouragement already. So it’s an additional potential source of pressure on the office market.”

He added that commercial property is interest-rate sensitive, as fuel prices have been driving overall inflation and thus interest rates higher, and indirectly impact in containing credit-driven property buying via their impact on interest rates.

“We anticipate that sales activity in the commercial property market will start to slow in the second half of 2022, after a recent period of strengthening, the ongoing interest rate hiking being a key driver of this expected slowdown.

“The fourth commercial property sub-sector that is challenged by high costs of fuel of late must surely be hotel property. Already challenged by revenues and occupancy rates still well-down on pre-lockdown days, high petrol prices are a negative for holiday and business travel, and thus for overnight accommodation demand.”

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