Bad news for back to the office – latest petrol price hike compels South Africans to stay home
The petrol price increase that kicked in from Wednesday (6 July) will force South Africans to reprioritise their budgets – including steering clear of going out to restaurants and sticking to working from home instead of heading into the office, says John Loos, property sector strategist at FNB Commercial Property Finance.
Fuel prices saw a massive hike from midnight, with petrol increasing by R2.57 a litre, and diesel going up by R2.30 a litre. This has pushed the price per litre up to R26.70 a litre inland – the highest price on record.
Loos noted that the hike will impact the country’s property market – specifically, by exerting upward pressure on consumer price inflation. It is thus in part responsible for interest rate hikes, a trend which FNB expects to continue for the remainder of this year.
Rising interest rates are a dampener for property demand, and the bank expects weaker commercial property demand in the second 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,” Loos said.
“Our second 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, Loos said FNB remains of the belief that these ongoing high petrol prices run counter to daily office working in favour of 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 expenditure to afford fuel bills that can’t always be avoided, Loos said.
“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, Loos expects the residential rental market to strengthen somewhat as certain aspirant home buyers postpone their home buying while this period of financial pressure persists.
Read: Oil could hit as high as $300/barrel – and bring more pain for South Africa: Investec
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