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Impact of fuel price increase on commercial property

Posted On Thursday, 02 June 2022 08:30 Published by
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It is well-known that the cumulative fuel price increase has added significantly to overall consumer price inflation, and this further increase sustains this pressure.

For many consumers, fuel spend is difficult to avoid, meaning that many have to reprioritise their expenditures and likely reduce more non-essential spending items, as well as delaying “postpone-able” low frequency purchases.

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, we expect many commuters, who are able to work from home to an even greater extent to contain their fuel bills.

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 its an additional potential source of pressure on the office market.

Commercial property is interest rate sensitive, so insofar as fuel prices have been driving overall inflation and thus interest rates higher, they 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 “4th” 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.

Source: John Loos

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