Precinct announces Downtown Decision

Precinct Properties Group (Precinct) is today announcing that it will not progress the Downtown Car Park development (Downtown) under current market conditions.

Precinct has made significant progress on Downtown, securing 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. However, market conditions for long-duration development projects have become materially more challenging, reflecting renewed inflationary pressure and elevated long-term interest rates.

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 NZD and greater escalation risk due to inflation. Making the decision now provides greater certainty for shareholders, prospective occupiers and project partners.

Precinct will retain the site and continue operating the car park, targeting a yield on cost of around 5%. Precinct continues to believe that Downtown represents one of the strongest city centre development sites in Auckland and future development of the carpark will remain an objective of the company.

The decision reflects 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.

Precinct’s Chief Executive Officer, Scott Pritchard, said, "We are disappointed that current market conditions do not support proceeding with the Downtown 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."

“While we are not proceeding with the development, Precinct’s strategy remains unchanged. The strength of occupier demand and rental levels evidenced through this process validates our strategy of owning premium, well-located assets in markets where quality space is increasingly scarce. This is positive for Precinct’s broader portfolio, including Commercial Bay, and indicates a greater level of under-renting across the portfolio than is currently reflected. With around $900 million of developments currently underway, Precinct continues to execute its strategy of concentrating investment in premium, well-located assets, strengthening our commitment to the future growth of Auckland”

"However, higher funding costs and return requirements mean the project does not currently justify committing shareholders' capital. This decision reflects Precinct’s disciplined approach to capital allocation and, as a result, the Board has resolved to return surplus capital to shareholders. While Precinct’s shares trade below NTA this is an attractive and accretive use of capital."

The full NZX announcement can be viewed on the NZX website