Current market conditions have now stopped the second half of Auckland’s Downtown Carpark redevelopment in its tracks, with Precinct Properties pressing pause on its planned waterfront office tower.
The project, dubbed Pūmanawa Downtown West, involved two new towers rising on the site of the existing multi-storey carpark. The taller 227m office tower would have become the city's second tallest structure, while the 162m tower was to include apartments.
In August, Precinct said the hotel and apartments tower would be indefinitely delayed until market conditions improved.
In an announcement on the NZX today, Precinct said it would "will not progress the Downtown Car Park development under current market conditions".
Precinct said it had made significant progress on the project, securing resource consent, appointing contractor Built on an early engagement basis and advancing pre-leasing talks for around half of the office space.
But it said conditions for long-duration developments had become “materially more challenging”, with renewed inflationary pressure and elevated long-term interest rates.
Those pressures had reduced confidence in what the development would be worth once finished, it said, while higher financing costs during construction, a lower New Zealand dollar and greater inflation risk had pushed up the cost of building it.
Precinct Properties chief executive Scott Pritchard said the company was disappointed that current conditions did not support proceeding with the development.
"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."
Precinct will keep the site and continue running it as a car park, targeting a yield on cost of around 5%, with future development of the site remaining an objective.
Pritchard said the board had also resolved to return surplus capital to shareholders.
“Higher funding costs and return requirements mean the project does not currently justify committing shareholders’ capital,” he said.
He said returning money was a good use of capital while Precinct’s shares trade below the value of its net tangible assets.
Precinct said its strategy was unchanged, and that the demand it saw for the Downtown space was positive for the rest of its portfolio, including Commercial Bay, which it said continued to perform strongly.
Pritchard said the rents agreed with prospective tenants suggested Precinct’s existing buildings were under-rented, and that the company still had around $900 million of developments underway.
Premium office vacancy in Auckland remained low, Precinct said, while higher project costs were expected to limit new premium supply and support rental growth across its Auckland portfolio.
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