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On a construction site in the heart of the City, London's financial quarter, a tower stands half-demolished, its bruised concrete and severed beams exposed. Here — between the Lloyd's building, a monument to the City's 1980s boom, and the Gherkin, Norman Foster's popular pickle-shaped tower at 30 St Mary Axe — work on the foundations for the 738 ft (225-m) Leadenhall Building is underway. Intended for completion in 2011, the skyscraper — designed by celebrated British architect Richard Rogers — would have stood as the tallest in the City.

That was the plan, anyway. But on Aug. 14, British Land, the U.K.'s second-biggest property developer, announced that construction of the building — already dubbed "The Cheesegrater", in honor of Rogers's wedge-shaped design — would likely be delayed, pushing completion back a year to 2012. The firm's motive? With the financial services sector trimming costs amid turmoil in the credit markets, both the demand and rental values for City offices are dwindling. British Land — itself hit by a $1.1 billion loss for the three months to July as the value of its portfolio tumbled — reckons it'll score lower construction costs and higher rents for the 47-story building by sitting out the downturn.

It's got a point. Net job losses among banking and insurance businesses in the City will hit 10,000 before 2011, according to Experian, the credit services company. Hardly a good time to be marketing empty office space; commercial real estate firm Atisreal says banking and finance firms are currently taking just 110,000 sq ft (10,200 sq m) of City space in a three-month quarter. Throughout 2005 and 2006, the take-up rate averaged more than four times the current level. The flatter demand will drive down rents in the City by 16% this year, Atisreal estimates, and a further 5.7% in 2009.

Worse still: the slump comes just as a rash of new office developments hit the market. With more than 7 million sq ft (650,000 sq m) of speculative office space coming online in the City this year and next, according to Atisreal, British Land may not be the only developer to take a time out. Rival Land Securities, Britain's largest property firm, will decide next March whether to go ahead with construction of a planned 509 ft (155-m) tower around the corner from Leadenhall Building; it too was originally planned for completion in 2011. "It seems an increasingly large percentage of that pipeline [of new developments] won't be built, or at least will be delayed," says Kelvin Davidson, a property economist at Capital Economics in London. "It's classic economics: weak demand and rising supply. There's only one way rents can go."

But delaying the Leadenhall project doesn't mean British Land can relax. A short stroll from that site, two of its other projects, Broadgate Tower and the neighboring 201 Bishopsgate, are scheduled to open early next year. And while tenants are secured for more than four-fifths of the smaller tower on Bishopsgate, more than half of the 35-storey, $570 million Broadgate Tower is still to be leased out. It's a similar story a few hundred yards across the City at the Ropemaker building, British Land's $500 million tower also slated to open next year.

And right now, there are few signs of development easing beyond 2009. With a slew of additional skyscrapers planned for the capital, developers will be jostling for attention in an increasingly busy skyline. London's Sellar Property Group is planning to build the 1,017 ft (310-m) high London Bridge Tower by the end of 2011. Not far behind, Arab Investments, the London-based property investment company, plans to complete The Pinnacle, a 945 ft (288-m) build, a year later.

And if competition for business in the City weren't fierce enough, the financial quarter has a rival on its own doorstep. Canary Wharf, the financial district that has grown out of abandoned docklands to the east of the City in recent years, is already home to Citigroup, HSBC and Bank of America. And on Aug. 1, JPMorgan ditched plans to build its European headquarters in the City in favor of a development across town in Canary Wharf. (Rivals Goldman Sachs and Merrill Lynch remain in the City, though.)

Still, property developers feeling the pain would do well to take the long view. "We've seen falls of this scale many times before," says Davidson, recalling "big crashes in [City] rents in the early '90s and around the turn of this decade." Further proof of property's fast-changing fortunes: when the Wall Street crash wiped out demand for space in a newly built Empire State Building in the '30s, locals dubbed the iconic skyscraper the "Empty State Building." London developers can be forgiven for aiming high.

• Adam Smith / London
• The delay of a new building couldn't have come at a worse time: a rash of new office developments are hitting the UK market