British Land puts London office development on ice

By Sinead Cruise

LONDON (Reuters) - Rocketing construction costs and subdued occupier demand has forced property company British Land (BLND.L) to delay development of a landmark office skyscraper in London's City financial district by at least a year.

In a first quarter conference call on Thursday, Chief Executive Stephen Hester said the company was now targeting a 2012 delivery of the 225-metre high Leadenhall Tower in the heart of London's Square Mile because it wanted to minimise costs and ensure the "premium building" would attract "premium rents".

"Our perception is that we may be passing the peak of construction costs cycle," said Hester, referring to the recent fall in steel futures from a peak two months ago.

"We will be retendering contracts to see if we can get some costs out, as contractors become more eager to price business keenly," Hester said.

Hester said the delay would bolster the tower's letting prospects, timing its delivery to coincide with an anticipated uptick in occupier demand from 2010 onwards.

News of the delay did not surprise investors or analysts, many of whom had expected British Land to follow rival Land Securities (LAND.L) and streamline its London office development programme in line with choppy market conditions.

British Land shares were trading 1.1 percent up to 730 pence by 10:22 a.m. versus a 0.3 percent rise in the FTSE 350 Real Estate Index .FTNMX8730.

FALLING VALUES