The developer of Mill Cove Landing in South Portland’s struggling Knightville neighborhood says he has a contract to sell one of the 27 condominiums and will lease at least two others this summer.

Developer Paul Leddy also said in an interview Monday that negotiations are under way for a high-end, deli-style market to move into Mill Cove Landing’s first-floor retail space at 72 Ocean St.

“We have someone with a restaurant background who has serious interest in the first-floor space,” said Andrew Ingalls, a South Portland-based real estate broker. “That is all I can say at this point.”

The news is a welcome surprise to merchants in the Knightville-Mill Creek area who counted on the 39,000-square-foot, mixed-used development to reinvigorate the waterfront business district. But the project, near completion, has stayed empty, with little news.

Leddy started construction in 2007, before the real estate market crumbled and the recession took hold.

“This is something we’ve been waiting for for the past two years,” said Sherryl Franciose, who owns Stella’s Seller consignment boutique on Ocean Street.

Business leaders consider Mill Cove Landing’s development vital to the future of the waterfront business district. The development takes up a full city block. The city has valued the land and development at $1.58 million.

Ingalls, who is marketing the retail space, said “everyone is hanging on to their money right now. The bad economy becomes a self-fulfilling prophecy.”

Ingalls also is the developer of a new four-story office complex in the waterfront district that is empty. Ingalls said he has had a lot of potential buyers walk through the site, but has yet to sell any of the office condominiums.

Leddy, a partner in Leddy-Houser Associates, acknowledged that the tough real estate market has made selling the upscale condominiums in Mill Cove Landing a challenge. Many potential buyers are holding off selling primary residences and buying new homes until the economy rebounds.

The first unit that is headed for sale is a two-level town home offered at $625,000, Leddy said. He described the buyers as Maine residents who own several homes.

He said the two leases are for summer residents who are not prepared to buy right now, but want to rent for five or six months. He described the leases as “executive rentals,” in which the units come fully furnished.

“It seems we may get seasonal people who end up being owners,” Leddy said. “But now is not the time to buy.”

Several of the luxury condominiums have views of Portland Harbor and Mill Cove. The two-bedroom, two-bathroom condos boast 9-foot-high ceilings, gourmet kitchens, gas fireplaces and balconies.

“We envision Mill Cove Landing integrating into the existing close-knit community and dovetailing with the progressive direction that is ahead for Knightville/Mill Creek,” Leddy said in promotional literature before the project was built.

Leddy said his builders will finish construction on the units as they are rented.

“It’s not what we would rather do. We would rather have sales,” he said. “But it seems to be an advantage to let people take a six-month lease and make up their minds. We just want to keep life and activity in the place.”

Meanwhile, Leddy said Mill Cove Landing hopes to work with Harvard Bank and Trust to put together “attractive financing” for borrowers. As an extra incentive, Mill Cove will furnish condominiums that sell with Cabot furniture.

Leddy also plans to move his own office from Willard Square to Mill Cove Landing. He said he and his wife plan to open an ice cream shop in the Willard Square space that he soon will vacate.

“The best thing we can do is ride through this difficult economy and stay positive,” said Leddy.