Progressive Enterprises has been seeking resource consents for the supermarket, retail and commercial development on two hectares of land in the City's Local Business Zone.
In their decision, Commissioners Michael Lester and Jane Black turned down the company's applications for the build on the grounds they did not "promote good urban design as prescribed in the District Plan".
The Commissioners heard submissions from Progressive, Palmerston North City Council and local residents during a two-day hearing in August.
The Commissioners were concerned about the potential effects of shading from the supermarket on neighbouring properties, the positioning of the buildings on site, the frontage and the impact on pedestrian traffic. They found the development did "not provide a good example of an integrated neighbourhood centre".
Palmerston North Mayor Grant Smith says the Commissioners have recognised the Council has raised the bar in terms of urban design.
"We encourage development but not at any cost. It has to be sustainable and integrate with the surrounding community. If things are not done right, they can have a knock on effect on the viability of the community and other local businesses."
Mayor Smith says the Council has introduced the same design standards adopted by many other cities.
"These are not unusual requirements," he says.
"As the Commissioners have found, the plans submitted to this point have failed to meet the criteria set out in our recently reviewed District Plan. Community groups and businesses including Progressive were consulted during that review."
The Council is putting millions of dollars into improving the cityscape.
"Pioneer Highway is one of the gateways to our City. We want it to be welcoming rather than dominated by car parks with little activity at the street level."
Mayor Smith says the Council carefully considered Progressive's application and has put months of effort into finding a solution acceptable to both parties.
"We're still happy to work with Progressive Enterprises on a revised Countdown design. The door definitely is still open," he says.