Vincom Retail, Vietnam’s largest mall developer, had some good news on the stewardship of its huge portfolio when it reported its results for the second quarter earlier this month. The best was that it seemed to be making good inroads on its vow earlier this year to concentrate on improving key mall operating metrics: occupancy, rental revenue and foot traffic, as opposed to pushing up the pace of new development.Occupancy is up by 3 per cent across the four mall formats it operates on a year-on-year basis and now stands at 85.5 per cent. With no new openings in the second quarter, the number of malls remained constant at 83, as did gross floor area (GFA) of 1.747 million square metres, but leasing revenue on that space increased by 6.6 per cent from the first quarter a year ago. Leasing revenue for the first half of the year increased by 25.7 per cent from the comparable period of 2022.Another encouraging sign for Vincom and its mall tenants is that foot traffic has now returned nearly to the pre-pandemic level: 48.4 million visitors trooped through its malls in the second quarter, compared with 49.7 million in the second quarter of 2019.The mall and retail outlook brightensThe backdrop for these results is an improved economic outlook after things were starting to look a bit shaky earlier in the year. Growth had dropped off sharply, partly due to a slowdown in Vietnam’s international trade sector that makes a massive contribution to the country’s GDP. Vietnam relies heavily on its manufacturing exports to developed countries, particularly the US, where demand for consumer products was easing.However, the Vietnamese government reacted quickly by injecting stimulus into other areas of the economy to offset the shortfall in the trade sector. One of the key beneficiaries was the retail sector. The VAT was cut from 10 per cent to 8 per cent. Thirty-six fees and charges applicable across the economy, including car registration fees, were slashed by as much as 50 per cent. Also, on June 19, the country’s key official interest rate was cut by 50 basis points to 4.5 per cent.The measures played well with consumers, whose sentiment is among the most buoyant in Asia. Vietnam’s retail sales grew by 7.1 per cent in July from a year ago, after growing by 10.9 per cent in the January-June period. Retail sales of goods were up 9.3 per cent in those first six months of the year, while accommodation and catering revenue grew by 18.7 per cent.International arrivals reached 5.6 million in the first half, which is helpful to retailers and the hospitality industry, but still well short of the pre-Covid level largely because of the slow revival of tourism from Chinese neighbours from north of the border. That situation will steadily improve too.Healthy mall metrics in the big citiesMall performance generally is trending positive, although with a continued clear bias toward the inner city areas.According to Colliers, retail in the Ho Chi Minh City CBD is thriving, with occupancy at 96 per cent and rental rates pushing up. New international brands, such as Lush and Benetton, are entering the market and more are expected in the second half of the year, including food and beverage and entertainment concepts. The picture outside the city centre is more mixed with high vacancy still a problem. In Hanoi, the market isn’t quite as vibrant, with vacancy slightly higher than Ho Chi Minh City in the CBD and some downward pressure on rents. A lot of new supply is arriving outside the city centre, which will further press down on operating metrics in the short-term but also make the city’s real estate platform more appetising for newly arriving tenants in the longer term.If only the country was like the cityFor its part, Vincom has a stake in much more than just the main cities. It is enjoying the early fruits of its efforts to improve portfolio performance, but there are nagging issues with its malls scattered around the country in secondary locations.Spending power is significantly lower outside of the city centres and in the provinces, and accordingly, so too is the company’s ability to attract top-notch tenants to these locations. It has four tailored formats: Vincom Center and Vincom Mega Mall for the higher-density areas, and Vincom+ and Vincom Plaza that target mainly the smaller provincial cities. It is these latter two formats that present the biggest issues. Still, Vincom is making strides in the right direction: over the last year it has hauled occupancy at Vincom Plaza up more than three percentage points, to 80.8 per cent, and nudged Vincom+ up almost a whole percentage point too, to 74 per cent. Still, those are stubbornly low numbers and need to move up further. The company been deprioritising new development, with no new projects opening in the first half. Two new openings are planned for opening later in the year though: VMM Grand Park Mega Mall in Ho Chi Minh City’s District 9, and a Vincom Plaza in Ha Giang in the north near China.Bone of contention?Vincom’s overall results in the second quarter read well: aside from the healthy gain in leasing revenue, the company made money from the sale of 23 shophouses it had in inventory in Dien Bien in the far northwest of the country near the Laotian border. In total from all sources, its revenue for the quarter increased by 17.5 per cent year-on-year, and its after-tax profit by 29.4 per cent.The company boasts that it is cushioned against volatility in consumer spending because 80 per cent of its leasing revenue comes from fixed rent on long-term leases, rather than as a percentage of tenant sales. In this day and age, that could turn out to be a bone of contention with tenants. The global trend is away from fixed rent lease terms toward more flexible percentage rent deals. These give the tenants some protection on the downside and also allow the landlord to share in the upside. In view of Vietnam’s positive outlook for retail sales, coupled with more competition among mall developers as new space comes online, Vincom might be forced to change its tune.