Precinct puts downtown development on ice

One of Auckland's biggest proposed developments has been shelved despite strong demand for the office space, because the developer says inflation, interest rates, the weak Kiwi dollar and construction risks have made the economics no longer stack up.

Precinct Property has announced it will not proceed with its downtown development at 29 Customs Street West in Auckland's Commercial Bay.

The development, which gained fast-track approval from the government, was set to be one of Auckland's largest commercial developments, comprising a 55-storey office tower accommodating more than 7000 workers, three podium levels of retail, restaurants and hospitality, as well as public spaces, with the possibility of a future second tower.

Despite engaging an early-stage contractor and being in advanced negotiations for 50 percent of the office space, the company said changing economic conditions meant it was no longer confident its numbers would stack up for shareholders on completion.

Precinct said it had secured resource consent, appointed Built on an early contractor engagement basis and advanced pre-leasing negotiations covering around half the office space.

Precinct blamed escalating project costs due to higher financing costs, elevated long-term interest rates, a lower NZ dollar pushing up imported costs, and stubbornly high inflation producing an unacceptably high risk of a blowout in building costs.

"We are disappointed that current market conditions do not support proceeding with the Downtown development." Precinct CEO Scott Pritchard said.

Pritchard noted that while today's decision was in the best interests of shareholders, he didn't rule out returning to the project in the future if economic conditions changed. Precinct said future development of the site would remain an objective for the company.

"It is an outstanding site at the heart of Auckland's waterfront, and the strong occupier interest and rental levels commercially agreed reinforce our conviction in the quality of the opportunity."

Pritchard said Precinct remained committed to its strategy of focusing on premium, well-located assets and, despite today's announcement, it still had around $900 million of other developments underway.

The company will retain the site and continue operating the car park that currently occupies it, targeting a yield on cost of around 5 percent.