British Land, the FTSE 100 property developer, has given warning of price falls in Britain’s £700 billion commercial property market and expects several rival office schemes planned for the City to be delayed or scrapped.

Delivering a robust set of figures for British Land’s own £16 billion property portfolio, Stephen Hester, chief executive, said a “realignment in retail [property investment] is going on”, and warned of price falls that are bound to occur in the offices market.

Mr Hester added: “Certainly there will be a realignment in offices. I am not saying when. But it is the reason we have been the biggest seller of offices. Some offices are overvalued and in some cases people have on spectacles that are too rosy.”

Even so British Land is pressing ahead with the construction of Leadenhall Building. The group has yet to find a tenant for the 736 ft (225m) skyscraper that has been dubbed “The Cheesegrater”. It will cost £286 million but will not be ready until 2011.

However, the rapid rise in the cost of borrowing over the past few months was likely to pull the rug from smaller developers that were planning other speculative office builds in London, Mr Hester warned.

“The change in the debt markets means they [other developers] will not be able to raise as much, and it will cost more than two months ago.

“It is likely to mean that that some of the developments which in more benign financial markets would have gone up will not go up or will be delayed. That is helpful for companies like us with the right product and strong balance sheet to put them up.”

While Mr Hester said demand from the occupier market remained strong, his prognosis on the investment market – buying completed buildings – is for further weakness.

Earlier this week, Investment Property Databank (IPD), the industry research group, said prices for retail and industrial property in July fell 0.6 per cent and 0.3 per cent respectively.

British Land is the City’s biggest landlord but in May sold its One Exchange Square building for £406 million, achieving a 5.6 per cent gain on book value. This was seen to be a call on the top of the London offices investment market.

Concern is, however, mounting over whether British Land will sell up to three quarters of its Meadowhall shopping centre in Sheffield, valued at £1.7 billion. The company has said it expects to conclude a deal this autumn, despite the recent flooding which has left 66 of the 274 units closed for refitting.

Mr Hester added: “We are still marketing, still in discussions with investors; as to what the outcome is I do not know.” Asked how the talks were going, he said: “I think in the current market environment, on a broader basis, it is best to avoid adjectives.”

Underlying pretax profit for the quarter to 30 June was £76 million, a 4 per cent rise compared to last year.

British Land sold its East Kilbride shopping centre near Glasgow, owned jointly with Land Securities, for £387 million, 2.8 per cent down on the book value of the asset as at the group’s March year-end.

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