had already flattened out during the latter part of last year despite a pop in retail sales. For the second quarter running, leasing revenue was pretty much flat year-on-year and as a result, net operating income from leasing was disappointing, falling by 4.9 per cent year-on-year.  So where was the top-line growth? Almost all of the top-line revenue gain was derived from the sale of investment properties, specifically 45 shophouses. This enabled the bottom line to grow by 5.7 per cent to 1083 billion VND (US$42.6 million). The problem of empty space Vincom has persistent vacancy problems in much of its 83-mall portfolio that isn’t in the CBDs of Hanoi or Ho Chi Minh City. The decline in overall portfolio vacancy post-Covid seems to have stalled, with occupancy now sitting at 82.8 per cent, down a concerning 1.6 per cent from the same quarter a year ago.  The company operates four basic formats. Two of them – the Vincom Center and Vincom Mega Mall formats –  are designed for high-density areas in the major cities and both have occupancy rates well down on a year-over-year basis. Occupancy for the Vincom Center format remains well above 90 per cent, but for the Mega Malls it has slipped down deep into the mid-80s, a place where mall operators don’t want to go. The other formats, Vincom Plaza (78.6 per cent occupancy) and Vincom+ (68.1 per cent occupancy, down more than five percentage points on the year) are struggling.  The problem with these persistent vacancy rates extends beyond the immediate loss of rental income: in some instances, it makes it more difficult to retain the remaining tenants. It also makes for a poor shopping experience because shoppers see the dead spaces that aren’t so noticeable when occupancy is in the 90s. Eventually, the problems start to feed on themselves: mall operators often invest disproportionately in their successful projects and neglect the unsuccessful ones, which causes a widening quality gap with the dead malls going deader still. (The redeeming feature is that in some vertical malls, the ground floor can be well occupied and the vacancy only begins to bite as a visitor rises through the mall. With a bit of luck and skillful management, occupancy can often be siloed and dead spaces hidden, at least for a time.) Undeterred, Vincom is launching four new malls in the second quarter, including Vincom Mega Mall Grand Park in District 9 of Ho Chi Minh City, with a gross floor area (GFA) of just over 45,000 square metres. Three smaller malls are also opening – Vincom Plazas in the secondary markets of Dien Bien Phu, Bac Giang and Ha Giang that will collectively add another 35,000 square metres of GFA to the company portfolio. All three of the Vincom Plazas are expected to open with low occupancy. Vincom also plans to bring two more projects to market in the second half of 2024: Mega Mall Ocean Park 2 in Ho Chi Minh City and Dong Ha Quang Tri on the central coast. Still, the company is prioritising optimising its existing assets with more and better retailers and a stronger experiential touch. Unfortunately, that is easier said than done because the higher-quality retailers are still reluctant to open stores outside of Hanoi and Ho Chi Minh City. The government is trying to help by relaxing rules for foreign chains to expand their store fleets but it is still a hard sell to retailers that are already cautious about adding physical space, particularly with spending power in the countryside limited. It’s a different story in the prime locations in the Hanoi and Ho Chi Minh City CBDs, where rents are being supported by tenant demand and a lack of available space: new space has not been opening fast enough where the retailers want it. It is becoming difficult to find quality vacant space in the CBDs of both cities. Hanoi in particular is no longer a retail backwater and luxury brands are showing increasing interest in launching in the capital.  When Lotte Mall West Lake opened in Hanoi last year, its eye-watering tenant list included the likes of Dolce & Gabbana, Swarovski and Kate Spade, along with a raft of mid-market brands. Retail sales growing strongly The struggles of Vincom to get retailers into rentable space outside of the main CBDs is disconnected from national retail sales, which have continued to build on the 10 per cent growth rate of 2023.  According to Vietnam’s National Statistics Office (NSO), retail sales of goods and services chalked up gains of nearly 9 per cent in the first four months of 2024. Sales of food, household goods and clothing all enjoyed double-digit percentage gains. Even so, as in most other parts of Asia, it is the food and beverage catering component of retail that is surging ahead of merchandise sales. Part of the credit goes to a proactive government response to a sputtering national economy in the second half of 2023.  Tourism is also playing its part: the NSO says international arrivals reached 6.2 million in the first four months of the year, representing a year-on-year increase of 68 per cent. The government was quick to take credit for this too, citing easier visa policies and tourism stimulus programs. Data is not available for all countries but based on recent trends it could be that Vietnam is now one of only a few countries in Asia whose international visitor numbers have breached the pre-pandemic level.  For its part, Vincom is confident it can negotiate any economic headwinds but if it can’t get more of that empty space filled, income growth from its mainstay – leasing – is destined to be hard to come by. Further reading: Vincom shifts focus from expansion to upgrades