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Home » Industry News » Property Development Sector » Fuel price increase to put more pressure on office vacancy rates and retail property

Fuel price increase to put more pressure on office vacancy rates and retail property

The July fuel price increase continues its upward trend, we believe this will lead to the continuation of certain other trends relative to property markets.

Most significantly, it exerts upward pressure on consumer price inflation, and is thus in part responsible for interest rate hiking which FNB expects to continue in the remainder of this year.

Rising interest rates are a dampener for property demand, and we expect weaker commercial property demand in the 2nd half of 2022 as a result of a rising cost of mortgage credit. Insofar as fuel prices contribute indirectly to higher interest rates, they also contribute to upward pressure on longer term interest rates and thus indirectly exert upward pressure on property capitalisation rates and downward pressure on real property values.

Our 2nd quarter FNB property broker survey already began to show slowing sales activity in the areas of retail and office property.

In terms of tenant demand for office space, we remain of the belief that these ongoing high petrol prices militate against daily office working and in favour of greater working from home as employees try to curb fuel bills. This comes on top of an already elevated work from home level compared with prior to lockdowns, and could persuade more companies to reduce office space requirements in the near term, thus putting further upward pressure on office vacancy rates.

The fuel price is also expected to be a constraint for retail property, with consumers reprioritising expenditures in order to afford fuel bills that can’t always be avoided. Non-essential goods and services such as restaurant eating and entertainment, and postponeable expenditures such as clothing and footwear, could all battle. Retail centres focused more on these are likely to experience more pressure from this source, such centres often being the larger regionals, while smaller food and grocery focused convenience centres may be less affected.

 In the area of residential property, while home buyer demand slows as a result of interest rate hikes, I expect the residential rental market to strengthen somewhat as certain aspirant home buyers postpone their home buying while this period of financial pressure persists.

Spokesperson: John Loos, Property Sector Strategist at FNB Commercial Property Finance

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