City centre's £850m project stalled by a year

The demolition work, to replace the St James shopping centre and a former Scottish Office building, won planning permission almost two years ago and had been due to start in a few months, with the retail mall closing in February 2012. However, this first stage is now likely to start late next year, or early 2013, the earliest date dozens of shops in the centre are expected to close their doors. Some could remain open until 2016.

The delays will be a major blow to the capital's retail sector, which has been struggling due to the impact of tramworks on Princes Street and competition from out-of-town shopping centres. The economic downturn, major changes to the approved scheme and legal negotiations with hundreds of leaseholders and landowners are all thought to be to blame.

Dozens of retailers are due compensation or will have to be relocated by development giants Henderson Global Investors, who purchased the 13 acre site in 2006. A spokesman for the company said the timetable had been put back to allow the centre to remain open as long as possible. The firm refused to say if legal negotiations were impacting its plans, but it is understood a big stumbling block is the need to strike a agreement with Thistle Hotels, which has a long-established hotel on the site. Some retailers are also thought to be stalling on relocation terms.

However, other sources said there was concern about starting demolition work due to the impact on retailers.