The island's tangata whenua Nga Hapu o te Moutere o Matakana and Te Runanga o Ngai Te Rangi mounted a hopeful legal battle in the Environment Court, arguing the development would harm the environment and iwi ancestral roots.
In a surprise decision last November, Judge Jeff Smith backed the iwi, ruling the development would be of little benefit for the Maori who live on the island or the general public.
In announcing the company's decision to shelve plans yesterday, Blakely Pacific managing director Phil Taylor said the company had reviewed its performance to make sure it was making the best use of its land.
"We've decided that what's best for us and our shareholders right now is to stick to our core business, and that's forestry."
Iwi representative Donna Poka was "blown away" when told of the decision in a meeting with Mr Taylor last week. She told the Herald it effectively ended a hard-fought battle, in which iwi had only been able to front an expert witness and a case planner "who was pretty much our everything" for court.
"We are just over the moon, just gobsmacked.
"It's been a hard journey for our whanau but we are relieved they have decided to go back to forestry."
Over the past year, iwi on the island also had to deal with fallout from the Rena disaster, which littered beaches with container debris.
Ms Poka said it was now hoped that other forestry companies on the island would steer away from property developments, "but time will tell".