The Watkins’ Terrace was constructed in 1876 on a site bounded by Hay, George and Campbell Streets and Parker Lane, In the early 1990s, the whole block between Pitt Street and George Street became the Capitol Theatre Heritage Precinct. The Watkins’ Terrace was approved for partial restoration and redevelopment as part of the precinct by First Scope Development Pty Limited.

The Capitol Square development presented a substantial challenge to the designers. The terraced commercial buildings that once housed the AJS Bank, Post Office and  Palace Hotel were retained on three sides. Four levels from the sandstone foundations of the basement to Level 2 were supported while a modern five storey building was built in the centre. At the same time a five floor, ten level car park was excavated in the sandstone below the site. Tunnels of the Eastern Suburbs Railway pass under one corner of the site in Campbell Street. Passing trains can be heard clearly in the car park.

Plans of the Watkins’ Terraces as they were before the Capitol Square development
 

The whole site, including Parker Lane between the Watkins’ Terrace and The Capitol Theatre was leased for 99 years from the City of Sydney. Parker Lane was permitted to be closed on the condition that the western wall of the theatre remained visible to the public and that public thoroughfare along the “street” remained available whenever the building was open.

The resultant design produced a soaring atrium with wholly glass walls and roof. The Centre’s restaurants, entertainment centre and Pub provide the interaction with the heritage of the site, the  theatre building and the theatre patrons.

The structural fabric of the Capitol and Manning Buildings have a remarkable history of adaptation, reconstruction and restoration to accommodate changing uses. First, as the new Belmore Markets in 1892-93; then as a permanent circus venue (Hippodrome) for Wirth Bros and an office and shopping block in 1913-16; finally in the conversion of the Hippodrome to an atmospheric theatre for Union Theatres Ltd in 1927-28. (Kerr 1990:27-28)

The buildings now on the site: Watkins' Tterrace, the Capitol Theatre and the Manning Building, together with the adjacent former Commercial Bank and Corporation Building in Hay Street, form a largely nineteenth century enclave, modest in scale, homogenous in alignment and lively in detail, which makes it a precinct of considerable townscape quality. (Kerr 1990:28)

The Capitol is the only atmospheric theatre to survive substantially intact in Australia. (Kerr 1990:27).