Melbourne-based property syndicate ITC Property Holdings wants to turn the former theatre into a $3 million shopping and food precinct.

Director Dominic Daly said he was as frustrated as the Daylesford public, which is becoming increasingly disenchanted with the hold-ups.

"These sorts of projects take time. The builders have to take extreme care and work with strict heritage permits," he said.

Mr Daly admitted the developers "had got it wrong" when they originally forecast a mid-2007 finish when the project was launched in 2006.

Melbourne construction company MCT Construction took over the tender from Montdami Pty Ltd in October last year.

Mr Daly said work on the front half of the building would be finished in 12 months.

The former theatre would then be opened for marketing while work at the rear of the building continued.

Mr Daly said excavation and demolition were complete and work had started on underpinning and wall panelling.

"The builders are there pretty much every day of the week, we are making steady progress," he said.

Set to be an icon in Daylesford, the renovated Rex Theatre is expected to house between 20 and 22 tenancies.

Other facilities include four full-size bowling lanes with a kitchen and seating area.

"I know people are wanting to have the building finished, but we can't wait either," Mr Daly said.

The project could also solve one of Daylesford's flaws - parking.

Patrons will be able to park on top of the building entering from Duke St.

Asbestos was removed from the building in early 2006.

The Rex Theatre ceased operations in 1963. It screened many greats including Gunfight at the OK Corral, Gone with the Wind, African Queen and Last Train from Gun Hill.