bourhood centres are apparently the most impacted by changing retail conditions. The adjustment to valuations by Vicinity Centres follows an independent review of 35 of its directly owned shopping centres. The fall in the value of the overall portfolio follows a 0.2 per cent or $37 million cut to the same 62 centres in the first half of the current financial year. Vicinity Centres now expects the completion of independent and internal reviews of its portfolio will result in a further 1.3 per cent or $202 million writedown in valuations for the six month period to 30 June 2019. Prime shopping centre assets, including Chadstone, DFO outlets and Sydney CBD centres, are actually increasing in value by a total of $86 million. The latest announcement highlights the squeeze on smaller centres, especially sub regionals. The consecutive announcements by the company indicate that the high growth glory days of the shopping centre industry are probably over for most retail centres and point to some significant changes ahead for the industry. The share market response to the Vicinity Centres writedown on the value of its portfolio was matter of fact, with the share price marked at around $2.60, mid way between its highest and lowest prices for the past year. That investor response was arguably steadied by the increase in the value of Vicinity Centres’ prime properties and a potential further lift with the redevelopment of The Glen in Melbourne’s eastern suburbs. The prospect of a bond issue that would leverage lower interest rates and reduce exposure on bank debt would also have encouraged investors. Further, there is also no doubt the perception that Vicinity Centres is big enough to ride out cyclical blips, albeit there is considerable uncertainty about the future of retail and the implications for retail property. However, the adjustment to the valuations for Vicinity Centres property portfolio do flag a tougher outlook for the shopping centre industry and raise the question as to whether or not the immediate challenges are a short-term market correction or represent long-term change. The decline in valuations of retail properties directly reflects a fall in rental income after retailer collapses, shrinking chain store networks, rent holidays and renegotiated leases. Declining income and reduced growth rates for rental income has driven a surge in shopping centre property sales as landlords and investors have worked to balance their portfolios. It is also a key factor in a slowdown in new centre construction and fewer redevelopments, as return on investment ratios decline and tenants become harder to recruit and at lower rental returns. Retail landlords have historically provided rent holidays to lure tenants to new developments and redevelopments, while using the rental included in the lease to enhance valuations that, in turn, increased borrowing limits from financiers. Expanding centres would amortise the higher costs of major upgrade works and rents could be increased but now necessary refurbishment will not provide the same return on investment. There are currently many centres throughout Australia where tenants are being retained in centres on rent holidays or percentage rent-only deals just to prevent vacancies. The concessions by landlords have not just involved specialty retailers as evidenced by QIC allowing David Jones to surrender a floor of its Eastland store in Ringwood and S-Centres agreement to reduce floorspace for Myer at Belconnen in Canberra. A report by Savills Australia in April confirmed that sub regional centres were under most pressure in mall categories, but valuations are also threatened in many strip shopping centres where vacancies are increasing. Many urban strip centres are being adversely affected by hefty land tax bills and reduced parking due to government and council attempts to reduce congestion, as abmuch as prevailing difficult retail market conditions for specialty tenants. Savills Australia notes the retail sector has been in a state of flux throughout the past three years, as the effects of online, large-format and specialist retailing have grown more pronounced. The commercial property agents first quarter 2019 snapshot report said there had been vastly different outcomes across states and sub-sectors in property, although the Australian retail sector still showed resilience. The report indicated there had been notable revisions to recorded rents across regional, sub-regional and neighbourhood centres with supermarkets the most stable of all retail categories. Savills Australia said the pendulum has clearly swung in the retailer’s favour in respect to rent negotiations and that could well see valuations plateau, if not fall, across the nation’s shopping centres, ending more than four decades of steady and often exceptional growth.