From my understanding, the office building was built back in the 1970's as part of plans to turn Woolloomooloo into an extension of the Sydney CBD, and was built before the rezoning was axed. Two decades later, Wooloomooloo had actually turned from what had been seen as a "working class slum" into a desirable address.
With the fact that highrise was not allowed in the area opened up a great opportunity for a residential developer to earn a good return by selling premium apartments. The never to be built out views were enough. Also the decision of the ANZ Bank to move out of the building also pressed the case for residential conversion.
Source: City Unit Sales. 1995. "The Domain Apartments" (advertisement). The Sydney Morning Herald, June 24, 85.