“Current market conditions” resulted in NZX-listed landlord Precinct Properties today announcing it is delaying the development of Auckland’s Downtown Carpark into a new office tower.
After axing half the project - a $500 million 45-level hotel and apartments - in August, the business has now announced it will not start the Te Pūmanawa Downtown West skyscraper office tower project early next year as it planned.
Precinct “will not progress the Downtown Car Park development under current market conditions”, it said of the remaining 55-level office tower plans.
Precinct said this is despite it having made significant progress on getting a resource consent, appointing Built on an early contractor engagement basis and advancing pre-leasing negotiations with high-quality occupiers for around 50% of the office space.
Its tower scheme won fast-track consent which lasts for 10 years, but the company will now return $103m capital to shareholders on November 13.
“However, market conditions for long-duration development projects have become materially more challenging, reflecting renewed inflationary pressure and elevated long-term interest rates,” it said.
These changes have reduced confidence in the value of the development on completion, as well as increasing project costs due to higher financing costs during construction, a lower New Zealand dollar and greater escalation risk due to inflation.
Infrastructure Minister Chris Bishop said fast-tracking was established to remove unnecessary regulatory barriers that delay consenting regionally and nationally significant projects.
“One developer choosing to pause a project for commercial reasons doesn’t change the fact that fast-track is delivering faster consenting decisions, unlocking investment opportunities and making it easier to build the infrastructure New Zealand needs,” he told the Herald.
So far, 37 fast-track applications had been approved, including renewable energy projects, housing developments and major roads. The Government’s job is to make it easier to get things built. Decisions about whether to proceed with them ultimately rests with developers, Bishop said.
Auckland Mayor Wayne Brown said given the state of the economy at the moment, it was probably a very sensible decision by Precinct.
“The last thing we need is for them to proceed and we have another half-built building in the city centre, just like Seascape,” Brown said.
Precinct said not building the tower provided greater certainty for shareholders, prospective occupiers and project partners, the company said.
Precinct would keep the site and continue operating the car park, targeting a yield on cost of around 5%.
The company continues to believe Downtown is one of the strongest city centre development sites in Auckland, and future car park development will remain an objective.
The decision reflected disciplined capital allocation in the context of current investment market conditions. Precinct remains confident in the Downtown location and the outlook for Commercial Bay, which continues to perform strongly.
Premium office vacancy in Auckland remains low, while higher project costs are expected to constrain new premium supply and support rental growth across Precinct’s Auckland portfolio.
The company also announced a $103m capital return and a $50m share buyback. The capital return will be made on Friday, November 13.
It plans to buy 60 million shares in the year to October 29, 2027.
The board has also approved a 6.5c dividend for the 2027 financial year.
Precinct’s investor presentation said the total investment costs on the Downtown project were expected to be $215m to $220m, but as at June 30 this year, it was $196m.
Precinct shares have been trading around 93c, down from $1.21 in January and $1.09 in August.
Anne Gibson has been the Herald’s property editor for 26 years, written books and covered property extensively here and overseas.
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