It has always been the lot of retail real-estate developers to be perceived as staid, boring and uninventive, while the retailers and other tenants that lease their space represent the glam side of the industry and get all the kudos. If you asked yourself how many new bricks-and-mortar shopping centre formats have been invented in the past 25 years, you could count them on one hand. Ask the same question about retail formats and it’s a very different matter. It’s just a lot harder, and
takes a much greater investment, to come up with a new kind of shopping centre. But is there anything wrong with being boring if you’re making a profit for your investors? In retail real estate, there are brilliant exponents of “boring” everywhere, generating mountainous returns to their shareholders over the years. There are a number of them in Asia — Central in Thailand and Vincom Retail in Vietnam come quickly to mind. Vincom is Vietnam’s largest retail real-estate developer and operator. It operates 80 malls with a gross floor area of 1.7 million sqm in 43 cities and provinces. Three new malls are planned for opening in 2022, which is a modest number in comparison with its pre-pandemic level of development activity. Why the rush? Vincom is a company in a hurry. Its haste is due to the fact that it is in the process of backfilling retail space for a hitherto underserved nation of 100 million, and wants to be the dominant player in Vietnam, just as Central is in Thailand, Simon is in America, and Capitaland is in Singapore. To get that job done as efficiently as possible, being boring is just about a sine qua non. From 2015-19 the company launched more than 50 malls, an astonishing output in anyone’s language, which increased the company’s share of mall GFA to 20 per cent. However, this required replication, installation of some second- and third-tier tenants, and tolerance for an unimpressive occupancy rate across the portfolio. To rectify these issues, Vincom chased global anchors, courting Inditex, Uniqlo, H&M, Decathlon and Muji, among others. It has had a good measure of success. During 2021, a number of high-profile global chains expanded their presence in Vincom malls, especially in HCMC and Hanoi, which account for 60 per cent of GFA and 70 per cent of leasing revenues. At the same time, though, Vincom needed to provide rent relief and more flexible terms to existing tenants that struggled in the face of Vietnam’s aggressive measures against Covid-19. The company’s stated strategy going forward is much the same: international anchor players complemented by Vietnamese brands. From a development standpoint, it is pushing hard for the advancement of its mega-mall format and for smaller centres that are part of its major residential projects. It currently has 4 mega malls – three in Hanoi and one in Ho Chi Minh City. The problem with haste in new development is that it can lead to cookie-cutter projects, a homogeneity and predictability of the product. Homogeneity is a double-edged sword. It’s good because you know exactly what to expect before you walk in. It might be nice for a consumer to know that a Vincom centre in Hanoi has the same anchor tenant that it does in Ho Chi Minh City. Predictability is reliability. However, it can be bad for exactly the same reason: you know too much about what to expect before you walk in and that might be, well, boring. Vincom walks a fine line as it implements its strategy across the whole portfolio. The company has prototypical formats in play: Vincom Center (designed for high-density locations), Vincom Mega Mall (a retail/entertainment concept averaging about 110,000 square metres of gross floor area), and Vincom+ and Vincom Plaza, both formats designed for smaller cities or towns. Of the four, the Vincom Plaza format is by far the most numerous, accounting for 54 of the company’s 80 centres. For now, it is getting the job done despite some frightful obstacles in the past two years. The retail market is now beginning to perk up, with sales of retail goods and services increasing by 9.7 per cent year-over-year in the first five months of 2022. For the latest reporting month – May – sales rose by 22.6 per cent. Coming up for air Vincom’s revenues from leasing (down 22 per cent year-on-year in 2021 and 27 per cent in the first quarter of 2022 compared to the comparable period in 2021) should slowly recover as sales improve and tenant support packages are scaled down. This will boost after-tax profit, which was 45 per cent lower in 2021 than in 2020 and continues to suffer in 2022. CBRE Research expects retail rents to rebound slightly this year but occupancy will be adversely affected by new supply coming out of the pipeline and the hesitancy of mid-end brands to expand in view of the growth of e-commerce. New supply in 2022 in Hanoi and HCMC alone is expected to be 236,000sqm and much of it will be in the form of large centres. Vacancy is an Achilles heel for Vincom: its portfolio-wide occupancy rate is only 83 per cent, with the Plaza format that accounts for two-thirds of its shopping centre portfolio sitting at less than 80 per cent occupied. The Vincom+ format is lower still. This was not a problem caused by Covid, although Covid didn’t help. In the first quarter of 2020 before the pandemic took hold, portfolio occupancy was still only 85 per cent. With the pandemic-sponsored growth spurt in e-commerce in mind, CBRE has urged retail property operators and their tenants to be alert for opportunities to build better e-commerce infrastructure, particularly those that relate to click-and-collect and last-mile fulfilment. Despite the e-commerce boom, Vincom is confident in the durability of retail real estate and believes that its retail/food/entertainment model makes for community ‘hubs’. The company also believes that Vietnam will be the number 1 destination in Asia-Pacific for international retailers looking to expand. It may well be, and if it turns out to be true then Vincom wants to have the real estate platform ready for them. Boring, maybe, but Vincom’s cookie cutter will make its shareholders laugh all the way to the bank.