Oil Hike Fallout Warning

Oct 6th, 2004

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Article by:
Lee-Anne Petchell

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With some transport companies choosing to pass on the higher cost of fuel to consumers, the fashion and household goods sectors may also be affected as belts are tightened, according to the company's research.

"Over the past seven years, it is the regional shopping centres that have seen the greatest increase in the proportion of discretionary retailing tenants, so they may feel the impact sooner," said Michael Armstrong, Jones Lang LaSalle's national head of retail leasing.

In the industrial market, the oil price hikes could lead to some companies holding off leasing decisions in the short term, with manufacturers, along with the transport sector, particularly sensitive to fuel price fluetuations, he said.

According to Jones Lang LaSalle's Glenn Sommer, with fuel representing 20 to 30 per cent of costs for transport operators, some companies are already passing on the higher cost to customers.

"W A haulier Hampton Transport is already doing so through a 3.8 per cent fuel levy," Mr Sommer said.

But UBS co-head of research Simon Garing said the impact of higher oil prices was masked by the Federal Government's electionrelated handouts.

"If we are talking about the mortgage belt being affected, they are also receiving the family bonus and other payments," he said.

Mr Garing said landlords were looking at more measures than just consumer spending when reviewing a lease for a retail outlet.

"Some centres will be doing better than others and that won't change just because oil has hit $USSO a barrel," Mr Garing said.

"I'd argue that the Perth office market is more vulnerable than retail just because vacancies are so high.

"You could actually turn that around and say a high oil price is great for W A's resources sector."

He said the performance of WA's retail centres varied depending on a variety of factors but the broader picture of WA's retail sector was very positive.

"At Garden City, Booragoon, retailers are desperate to get in and only two years after completing an expansion they are looking at going again," Mr Garing said.

In the new developments he said smaller retailers might try to use the oil price as a negotiating tool to push down rent.

"From my perspective I don't see any material impact on the major retail owners because of oil," Mr Garing said.

Burgess Rawson commercial and industrial agency director Andrew McKerracher said it was difficult to anticipate the effect on the leasing market because there had never been a sustained, long term rise in the oil price.

"If it becomes a longer term situation of high oil prices, in due time you could expect it would flow through," Mr McKerracher said.

"I believe it's a bit early to consider any impact." 

CB Richard Ellis bulky goods director Jeff Klopper said several big retailers with expansion plans had not indicated the rising oil price would sway their decision.

"It hasn't raised an eyebrow with any retailers yet," Mr Klopper said. 

"It will obviously affect transport costs, which would then be passed on to customers.

"If the price rise does continue it will affect interest rates, which is more likely to have an impact."

Lease Equity director Jim Tsagalis also said any interest rate effect would have more impact than the oil price hikes.

"From a retail perspective the market is very strong," Mr Tsagalis said.

Because consumers were spending more on petrol did not mean they would spend less on apparel.

"Regional shopping centres may be affected to some small extent but it will not be substantial at this stage," Mr Tsagalis said.

The high cost of petrol had also been offset by the battle between Coles and Woolworths to gain customers through discounted petrol offers.

Last week, the price of crude oil reached more than $USO a barrel for the first time si.p.ce oil futures began trading un Wall Street in 1983.

The price has risen by 54 per cent this year.

Source: The West Australian - 6th October 2004

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