Development in Talisman Square has been delayed by a further 12 months, with a car park to be built instead of shops and flats.
Work to build a restaurant, five shops and four flats on the north side of the shopping area was due to be completed in 2008 but it had been put on hold because Cobalt Estates has not found tenants for any of the buildings.
The company says the 47-space car park will be a temporary measure but residents fear 'Phase 2' of the 20 million project may never happen.
Richard Morris, of Southbank Road, said: "I had always thought the plans of Cobalt Estates were over-ambitious even in better financial times and that 'Phase 2' might never happen.
"Now we know that their proposal is to demolish the empty shops on the north side of Talisman Square and replace them not with retail, restaurant and residential units as planned but with a public car park.
"They call this a temporary measure but it may be forever."
Cobalt has blamed the recession on the delay and said its priority has been to find businesses to occupy the former Woolworths building after the chain went bust.
WHSmith has moved in and the developer is in talks with another potential tenant to take the other half of the space.
Hugo Hawkings is chief executive of Discovery Properties Ltd, which owns Cobalt Estates. He said: "The empty shops are an eyesore so the car park will have the double benefit of tidying that up and bringing more customers into the heart of the scheme and more parking spaces to Kenilworth.
"The plan is to take on Phase 2 in earnest this year.
"We have a lot of interest and are hoping to sort things out in the next six to nine months and start building work by this time next year.
"You could look at it as the start of Phase 2 as we were going to demolish the shops anyhow so without the car park the site would just sit there with a big holding board round it."
Francis Smith is co-owner of Kenilworth Books in the square and thinks the car park is a better option than keeping the empty shops.
She said: "At least it shows something is happening and it will make our business more visible.
"It's a shame it has taken so long for them to do something but we have been told work will start next year.
"Having parking right by the shop could actually help business."
The deadline for people to object to the proposal has passed and a decision is expected to be made by Warwick District Council's planning committee in the next few weeks.