Vicinity Centres has reported a 55.8% growth in luxury retail sales for the first half of FY23, remaining the largest contributor to its lease portfolio.
Vicinity Centres MD and CEO Peter Huddle said luxury represents more than $1 billion in sales annually.
“Luxury retail and apparel and footwear, particularly at our Outlet centres, remain amongst the strongest performing categories,” Huddle said.
“Our growth in luxury is the result of our deliberate investment strategy to enhance our luxury landlord credentials.
“Pleasingly, existing luxury brands are demanding more space to extend and elevate their product offerings and we have a pipeline of potential new brands to bring to our premium centres in the short to medium term.”
Vicinity noted a retail sales growth of 20% for the first half compared to 1H FY20, with Huddle saying this reflects the resilience of the Australian consumer.
“[This] was also evidenced by improving visitation, increasing dwell times and spend per visit being sustained at 1.3 times pre-COVID levels,” Huddle said.
Speaking on Vicinity’s half year results, which included a net profit after tax of $176.3 million, Huddle said it highlights its focus on performance in a resilient and uncertain retail space.
“From a consumer demand perspective, the Australian retail sector continues to be a benefactor of an extremely tight employment market and robust household income growth and savings rates,” Huddle said.
“That said, we are mindful of the impact of rising interest rates and increased costs of living on Australian households in the near term and we expect the rate of retail sales growth to moderate in 2H FY23.
“The strength of our balance sheet and our proactive approach to managing our capital enables us to invest in our existing growth initiatives, notably our retail and mixed-use development pipeline.
“Vicinity remains well positioned in a rising interest rate environment given our consistent and prudent approach to managing interest costs.
“With 81% of our drawn debt hedged over FY23, and a very modest step down in FY24, we will maintain an active focus on hedging this year and in the years ahead.”
During 1H FY23, Vicinity completed 833 leasing deals, which is 190 more deals than 1H FY22 and 43% higher than pre-COVID levels.
Vicinity said leasing spreads continued to grow, with a flat leasing spread for 1H FY23 (-0.1%) relative to -4.8% reported over FY22 and -6.4% for 1H FY22. It had achieved high single digit spreads for Chadstone and DFOs, driven by ongoing retailer demand for premium assets.
Cumulatively, 96% of Vicinity’s new leases have fixed annual growth rates of at least 4%, of which 75% have fixed 5% annual growth escalators. The average lease tenure of new deals negotiated in 1H FY23 was 5 years.
Vicinity leased 160 vacant stores in 1H FY23 and occupancy increased to 98.6% from 98.3% reported at 30 June 2022 and 98.0% reported at the height of the pandemic (as at 31 December 2020).