UBS: Vicinity & Scentre’s Future of Mixed-Use Opportunities

UBS financial analysts have found a mixed-use makeover of Vicinity Centres’ portfolio may provide more advances for the nation’s second-largest retail landlord than many in the market.

James Druce and Grant McCasker from UBS, toured Melbourne shopping centres held in the portfolios of Scentre and Vicinity.  “We walked away incrementally more positive with greater comfort Melbourne retail should remain resilient … amidst standout population growth,” they wrote in a recent note to clients.

The population growth has averaged 2.5 per cent annually since 2011, with half of Vicinity’s portfolio based in Victoria. Vicinity’s portfolio includes the nation’s biggest mall Chadstone, along with Northland, Box Hill, Victoria Gardens and Sunshine Marketplace. Mixed-use opportunities are “large and clearly demand-driven” according to UBS.

“Vicinity’s land on transit/activity hubs at Box Hill and Sunshine Marketplace are set to benefit most,” the analysts wrote.

The market continues to give Vicinity no value for its mixed-use opportunities. Once various zoning/development approvals are obtained, starting in financial year 2020, we expect this will change.

In August of this year, chief executive Grant Kelley attributed $1 billion to the uplift it would get from an ambitious redevelopment program.

In the past, Vicinity has accomplished mixed-use projects, including the redevelopment of The Glen with their apartment expansion and Chadstone’s addition of office and hotel developments. Another 10 or so more projects could also be rolled out through its portfolio.

Box Hill Shopping Centre is stated as one of Vicinity’s most important opportunities by UBS analysts, which spreads across two precincts and caters to the large Asian community in the area. The area has the capacity for a 300,000-square-metre expansion.

Street Talk reported Vicinity is currently fetching bids on their $1 billion portfolio, with Shopping Centres Australasia Property Group among the potential contenders.

Scentre’s population growth is down 4 per cent in the past three months, with UBS only visiting one of their malls, Westfield Knox. UBS team expect its operating metrics – leasing spreads and specialty sales – to improve on its first half, based on recent sales and employment momentum.