Vicinity Centres used its 2026 Capability Showcase to make the case for a more concentrated, premium retail portfolio, led by Chadstone and Chatswood Chase. The presentation also set out development returns, balance-sheet capacity and a sizeable residential option beside Chatswood Chase, although much of the value remains dependent on stabilisation, approvals and market conditions.
- Premium assets now represent 67% of the retail portfolio
- Chadstone development forecast to reach a 5.6% stabilised yield
- Chatswood Chase forecast to reach approximately $1.5 billion in value
- Chatswood residential proposal could add about 1,000 residents near the centre
- 26.1% gearing with 87% of FY27 debt hedged
Vicinity Centres (ASX:VCX) is betting that a smaller number of better-located, more productive retail assets can do more of the heavy lifting. At its 2026 Capability Showcase, the group said premium assets now account for 67% of its retail portfolio, up from 51% in June 2022, while its direct portfolio has been reshaped around larger centres with higher occupancy and stronger specialty sales.
The strategy is visible in the numbers. Vicinity reported portfolio occupancy of 99.6% excluding DFO Eastern Creek, specialty sales of $13,556 per square metre and an average asset size of $563 million, up 43% from June 2022. Since then, the group has committed $2.5 billion to 34 development projects, targeting an approximately 7% stabilised yield and roughly 12% unlevered internal rate of return across the programme.
Chadstone development moves towards stabilisation
Chadstone remains the flagship. Vicinity values the Melbourne centre at $7.26 billion, with retail sales of $2.735 billion and a 4.25% capitalisation rate as at 30 June 2026. The Market Pavilion and One Middle Road projects, which together involved about $540 million of capital investment, were presented as evidence that development can lift the economics of the whole asset rather than simply add new floor space.
Vicinity said the Chadstone project delivered 93% of stabilised retail sales in its first year, against an underwriting assumption of 90%, and is on track to reach stabilised trading within two to three years. The development yield is forecast to rise to 5.6%, compared with a 5% underwrite, while project IRR is forecast at more than 11% under the company’s stated assumptions. The presentation also acknowledged the sensitivity: applying the centre’s latest 4.25% capitalisation rate rather than the 3.88% underwriting rate would turn an estimated $85 million development profit into a $9 million loss.
Chatswood Chase offers retail and residential optionality
Chatswood Chase is the other major test of Vicinity’s model. Following a major repositioning, the centre has 99.7% occupancy, 15% higher foot traffic from its base year and six-month same-store sales growth of 26%, according to the presentation. Vicinity forecasts that the asset’s value will rise from about $1.3 billion currently to approximately $1.5 billion as remaining works are completed and the luxury offer moves towards stabilisation.
The next option sits next door. Vicinity is progressing planning for two residential towers on adjacent sites, with indicative plans for about 200 and 280 apartments. The proposal remains subject to rezoning, development approvals, market conditions, construction pricing, a potential partner and a final investment decision. If delivered, the company says the project could place about 1,000 additional residents within direct reach of Chatswood Chase, but the timetable is indicative rather than committed.
Balance sheet preserves room for selective investment
Vicinity’s capital allocation pitch is deliberately conservative. The group reported 26.1% gearing, a 5.0% weighted average cost of debt and 4.1 times interest cover at 30 June 2026, with an A/Stable rating from S&P Global Ratings and A2/Stable from Moody’s. It also had $0.8 billion of undrawn limits, while 87% of debt was hedged in FY27 and weighted average drawn debt maturity stood at 5.1 years.
Management set indicative return hurdles of at least 5.5% yield and 8% unlevered IRR for acquisitions, and at least 6% yield and 10% unlevered IRR for developments. That discipline matters because the showcase also described higher construction costs, constrained contractor capacity, supply-chain disruption and increased execution risk. Vicinity’s stated response is to favour lower-risk projects after the peak development phase, recycle non-strategic assets and preserve the option to pursue mixed-use opportunities when planning and market conditions align.
The immediate catalysts are concrete: Galleria is scheduled to open in November 2026, Uptown’s revitalisation is anticipated to begin in early 2027, and Chatswood Chase still needs to convert its luxury leasing momentum into a fully stabilised income stream. The more difficult question is whether Vicinity can keep producing development returns above its hurdles while capitalisation rates, construction costs and consumer conditions remain moving parts rather than settled assumptions.
Bottom Line?
Vicinity has assembled a higher-quality portfolio and a credible development pipeline, but the next phase depends on turning forecast yields and valuations into reported income without giving back the gains to cap-rate or construction-cost pressure.
Questions in the middle?
- Can Chatswood Chase reach its forecast 6.7% stabilised development yield as luxury tenants open progressively?
- Will the proposed Chatswood residential towers secure approvals and a capital structure that preserves Vicinity’s balance-sheet flexibility?
- Can future acquisitions and developments clear Vicinity’s return hurdles if funding costs and asset yields remain elevated?