Side-on announced its Moray Pl business was coming to an "abrupt end" after more than a year of negotiations with the Dunedin City Council.
The council needed the business to close before starting critical repairs to water pipes amid fears of a sinkhole.
The council paid $1.775 million to buy the building last year, for the purposes of connecting pipes between Bath St and Moray Pl.
Side-on had a lease until 2034, and the council had purchased the remainder of that lease, the council spokesman said.
"We recognise Side-on is a much-loved cafe, and we worked with the owners on various options for an alternative venue during our negotiations.
"While the cafe will now close instead, we wish the owners well for any new venture in 2024.
"This agreement allows for work to proceed as quickly as possible on the replacement of old and failing pipes under Bath St," the spokesman said.
The project had been particularly challenging from an engineering perspective, and time had been an important factor, he said.
It had investigated alternative pipe routes as part of its planning, but "almost all routes" had to pass under private property in Bath St at some stage.
The only other option was to run the new pipe along Bath St, lower Stuart St and then lower Moray Pl, which would be the most costly, time-consuming and disruptive option for both businesses and buses.
The repairs were needed because a partially collapsed watercourse pipe, running under private property from Bath St to lower Moray Pl, was releasing stormwater that had the potential to create a sinkhole, he said.
Work was expected to begin in April and take more than a year.
Side-on has operated from Moray Pl for five years.
The Otago Daily Times visited Side-on yesterday at lunchtime, and asked people who were queueing up for their thoughts on the business.
Brier Bousie said she was "gutted" by the closure.
"I walked to here from uni for lunch, I loved it so much.
"It’s an amazing spot for people who work in the area. It’s a real shame."
Kurt Crossland headed for the store to use a gift voucher when he heard they were shutting down, but the store was already sold out by the time he arrived.
"The vibe there is sad, the staff seem flat and flustered."
Side-on co-owner Renee Hope declined to comment when contacted by the ODT.
In a statement on social media, the business said it had tried to find a new home and explore other options, which "didn’t pan out".
The cafe will close next Friday.
By Tim Scott and Rafael Clarke
