British Land is delaying starting building the "Cheesegrater" tower in the City of London in the hope of launching the skyscraper in time for the peak of the next commercial property cycle.

The UK's second biggest property company expects the building will be completed by 2012, a year later than originally planned, but is reluctant to commit itself to a firm date. It also hopes to negotiate a cheaper construction contract for the building, despite recent evidence that building material prices have soared by 12 per cent this year and are forecast to continue to climb.

Work on the foundations of the Richard Rogers-designed building on Leadenhall will continue but the company will delay finding a construction contractor in the hope that it can take advantage of an anticipated fall in commodity prices and hammer out a tough deal with contractors, who are having to lay off staff in the face of falling orders.

Stephen Hester, chief executive, said: "There is a chance that we can get a lower price — steel futures and energy prices are coming down from their peak — and if we deliver the building later, we hope it will be launched into the peak of the next upturn for City rents."

"We think the office market will start turning up again by 2010, but if we deliver the building in 2011 we would have to start looking for tenants in 2010 and we would rather do it a little later into the cycle, particularly with such a high-profile special building," Mr Hester said.

Delaying the 225-metre tall, wedge-shaped tower reveals the extent that falling demand for office space from financial institutions is beginning to affect the City of London. Last month, one of the City's biggest tenants, JPMorgan, said it would take space at Canary Wharf, after fierce competition between landlords for the prestigious tenant.

British Land is close to completing a large building at Ropemaker Place, which is as yet unlet, and has 29 per cent of its portfolio in City offices as owner of the recently extended Broadgate Estate.

Mr Hester said that property values were likely to continue to fall for at least the rest of this year and that rents would deteriorate further, however he argued that British Land's assets were resilient.

"Our rents are up and our occupancy is up but there is no denying we are operating in a difficult market, " he said. However, he insisted that British Land's assets would "see out many economic cycles with a dependability few businesses can match."

The owner of Meadowhall shopping centre in Sheffield reported a 5 per cent fall in the value of its property portfolio in the three months to the end of June.

British Land's net assets have fallen to £6.3 billion and the company's net asset value per share has dropped by 10 per cent to £12.12 in the quarter.

Shares in the company rose by 3.5p to 725.5p as analysts noted the solid operational performance with like-for-like rental growth of 6.3 per cent achieved, compared with an industry average of 3.3 per cent. .

The office sector has seen the biggest fall in value, down 10 per cent, but retail properties have fallen by only 3.8 per cent. Rental growth is also being achieved in the retail sector, although offices have seen a fall in rental growth.

British Land described investment markets as "thin, nervous and negative in tone”. It said there was substantial capital waiting on the sidelines but it would only be spent when investors perceived "cheap" opportunities.

British Land said visitor numbers to Meadowhall and some of its other retail parks were consistently higher in the first six months of the year, compared with last year.

It also added: "While the climate remains challenging for some of our customers, our exposure to occupiers in administration represents only about 0.3 per cent of total rent," the company said in a statement.

The company posted a 23 per cent rise in underlying pre-tax profit to £74 million in the quarter.

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