$1b Commercial Bay delayed even further: no shops, offices till next year

Commercial Bay, late delivery. Photo/Jason Oxenham

Precinct Properties New Zealand says its high profile Commercial Bay development being built by Fletcher Building will now take even longer and cost more.

The total cost for the redevelopment of the former Downtown shopping centre at the bottom of Auckland's Queen Street will now be $690-to-$700 million, versus its February forecast of $690 million.

It now expects the retail centre to be completed in March 2020 and the PwC office tower to be done in April 2020.

In February it said there was "minor slippage" of about a month to the construction programme "which may impact previously disclosed completion dates of September 2019 for retail and December 2019 for office."

Chief executive Scott Pritchard said "as previously stated, the last two months have been critical in progressing the project, and it is unfortunate to have to confirm that we have observed further slippage beyond what we observed earlier this year".

This was the latest in a series of previously announced delays. The retail centre was originally expected to open by October 2018, with the office tower completed by mid-2019.

The potential increase of $10 million reflects the cost of delays to opening, Precinct said.

The revised opening date for the retail centre takes account of expert advice that the base building works are unlikely to be complete before December 2019. In addition, Precinct has decided to provide additional time for completion of retail fit-out works after these base building works have been completed, it said.

"The yield on cost is expected to remain largely unchanged in a range of 7.4 per cent to 7.5 per cent, ensuring that the development remains on track to deliver the expected benefits to Precinct's long-term earnings," it said.

It noted that Fletcher Building has brought a number of claims against Precinct under the construction contract seeking extensions of time and/or additional cost, and further claims are anticipated.

Fletcher - the country's biggest construction firm - got caught by escalating costs on some major projects, particularly in its high-rise construction business, called the Building + Interiors unit, that saw massive losses revealed in 2017.

"To date, these claims have not resulted in material additional costs or extensions of time being awarded and Precinct remains confident that the provisions of the construction contract appropriately protect Precinct from losses due to contractor delay and/or breach of contractor obligations," Precinct said.

In February it had withheld $15.4 million from Fletcher in liquidated damages as at December 31 and Pritchard says he expects that amount will grow.

Precinct shares fell 0.6 per cent to $1.65 in early trading, while Fletcher shares were down 4.4 per cent at $5.20.