ost of specialty names spanning sporting goods to office supplies to home furnishings.  Vincom is easily the largest mall developer and operator in Vietnam, and wants to focus less on new development this year and more on a trifecta of objectives aimed at its existing mall fleet: driving rental growth, upgrading its market positioning, and strengthening the shaky operating metrics of elements of its far-flung portfolio. New development is still happening, but at a constrained pace. A solid start The company has taken good first steps in its quest for these objectives. In the first quarter, rents on a year-over-year basis in Vincom’s CBD malls rose by a robust 36 per cent in Hanoi and 45 per cent in Ho Chi Minh City. The company attributes this partly to a shortage of high-quality supply to address a strong demand for high-quality space. Overall company leasing revenue was up 54 per cent, year over year. (Bear in mind, though, that the bar was set low because leasing revenue in the first quarter of 2022 fell 27 per cent from the corresponding period in 2021.) After-tax profit in the first quarter was up 171 per cent, year on year. Footfall was finally almost back to 2019 levels in the first quarter, with 47 million visitors.  The vacancy headache Being the dominant mall operator in a developing nation of 100 million is an impressive achievement that also carries some perils not so salient in mature markets. One is the sheer unevenness of spending power among the inner cities, the suburbs and the provinces. Vincom tries to cover itself with four tailored formats: Vincom Center, which is designed for high-density locations; Vincom Mega Mall, a retail/entertainment concept averaging about 110,000sqm of gross floor area (GFA); and Vincom+ and Vincom Plaza, two formats that are oriented toward smaller provincial cities.  Despite the format tailoring, there is a stark performance differential. Total GFA is now 1.747 million sqm, up 6 per cent from a year ago, but vacancy across the portfolio outside of prime CBD locations remains a problem. The total portfolio occupancy rate sits at 84.5 per cent, with the Plaza format, which accounts for about two-thirds of its shopping centre portfolio, sitting at 81.1 per cent. By the standards of world-class shopping centre operation, that’s a bit ordinary, and occupancy in the Vincom+ format is scruffier still, at 73.2 per cent.  Just two new openings are planned for this year: VMM Grand Park, a Mega Mall in District 9, Ho Chi Minh City; and a Vincom Plaza in Ha Giang in the far north, near the Chinese border. Both are expected to open in the fourth quarter. The slowdown in openings is understandable after a breathtaking four-year period from 2015-19 when Vincom opened more than 50 malls. That, unfortunately, meant lower-quality tenants and weak occupancy rates were tolerated. This situation will now take time to unwind, since better retailers are squeamish about opening a lot of stores with e-commerce so strong and spending power in secondary locations still weak. Outlook CBRE Research expects retail rents to continue expanding this year – though not by much – but the outlook for occupancy remains glum for the aforementioned reasons. Also, the bullish forecasts for GDP growth are looking dubious. The World Bank forecast GDP growth of 6.3 per cent this year in Vietnam, comfortably above the ASEAN average of 4.9 per cent. However, this is looking more at risk every day, and may require downward revision in view of the modest 3.3 per cent growth recorded in the first quarter. Luckily, Vietnam has never been dependent on tourism to drive demand to the same extent as some of its neighbours, notably Thailand, so it is mainly domestic consumption that will underpin retail sales growth. So far, it’s doing the trick. The retail market is recovering nicely post-pandemic, with sales of retail goods and services in the first quarter of this year growing by 14 per cent, year over year;  the increase was still strong net of inflation, at 10.3 per cent. More significantly, sales are now 27 per cent above the level of the first quarter in 2019.  With only two openings planned, and none in the first three quarters, this will be a crucial year for Vincom to come to grips with the vacancy problem. It is a particularly big headache in secondary markets and the non-CBD areas of the big cities. The gap in occupancy between CBD and non-CBD malls is material. CBRE Research shows that CBD malls in Hanoi have occupancy 9 percentage points better rhan non-CBD malls, and the comparable advantage in Ho Chi Minh City is close to 6 percentage points. Vincom also wants to juice up its market position by introducing first-to-market brands, including Dolce & Gabbana Beauty, Lush and Bath & Body Works. The company’s strategy is to nurture the presence of international anchor players, complemented by Vietnamese brands. The real engine of occupancy growth is likely to be the expansions of the latter. From a development standpoint, it is pushing hard for the advancement of its Mega Mall format and for smaller centres that are at the front end of its big residential projects. The possible investment by Central Group is a promising development in the Vincom story, and could help the company advance its objectives faster if it comes to fruition.  So far though, both companies are mum about the negotiations, so stay tuned.