Shopping centre owner counts cost-of-living crunch

Shopping centre owner Vicinity Centres says shoppers are ditching department stores in favour of its Direct Factory Outlets (DFOs) as cost-of-living pressures put the brakes on discretionary spending.

Vicinity, which manages more than 50 shopping centres across Australia – including Chatswood Chase, The Strand Arcade in Sydney, Chadstone and Emporium Melbourne – said on Tuesday that retail sales had slumped in the second half of fiscal 2024.

Vicinity CEO Peter Huddle at Chadstone shopping centre in Melbourne.Credit: Louis Trerise

Homewares was the most affected category: moving annual total sales were down 3.3 per cent, while jewellery sales fell 2 per cent. However, the leisure category was boosted by the popularity of athleisure wear, which pushed the sector up 5.5 per cent.

Bargain hunters also flocked to the group’s DFOs, where overall sales increased 3.5 per cent for the year to June 30, which offset some of the 5 per cent decline in sales at the struggling department stores.

For the year, the ASX-listed landlord’s funds from operations – a more accurate measure for listed property trusts – slipped 2.9 per cent to $664.6 million. Statutory net profit after tax was $547.1 million, up from $271.5 million, which included some one-off items.

Vicinity chief executive Peter Huddle said retail tenants had to be viewed on a case-by-case basis. For example, some footwear brands were having strong sales, while others faltered.

“As expected, elevated costs of living tempered retail sales growth in the second half of the 2024 financial year, however, retailer confidence to lock in new leases remained robust, with the team negotiating more than 2000 leasing deals over the year.”

He added the deals included average annual rent increases of 4.8 per cent. Having leased out more than 230 vacant shops during the year, 99.3 per cent of Vicinity’s retail properties were now occupied, the highest level since the pandemic, he said.

Luxury retail, which has long been the growth engine of the sector, had an expected slip in sales, but the return of workers, international tourists and events by Melbourne and Sydney city councils have boosted CBD-based retailers across all categories.

“Of note, at 99.6 per cent, CBD centre occupancy now exceeds pre-COVID levels, reflecting not only retailer confidence in the future of CBDs, but also outstanding leasing execution by our team, with the introduction of new flagship stores and new-to-market concepts,” Huddle said.

A render of the proposed redevelopment at Chatswood Chase on Sydney’s north shore.

Vicinity has also undertaken significant redevelopment of its malls. At Chadstone, which is co-owned by billionaire John Gandel, Kmart has moved to the adjacent One Middle Road office tower, while the first stage of the food-focused Market Pavilion precinct is 95 per cent leased.

On Sydney’s north shore, the $590 million upgrade of Chatswood Chase includes an Apple store, luxury shops, Australian designers, new-to-market concepts, and a 13,200-square-metre David Jones concept store.

Moody’s Ratings senior analyst Saranga Ranasinghe said Vicinity Centres’ results were in line with the credit ratings firm’s expectations, as the company reported strong operating metrics while maintaining prudent balance-sheet settings.

Vicinity declared a final distribution per security of 5.90¢, payable on September 16.

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