Businesses in Bermuda feel bite of recession
Businesses across Bermuda have been feeling the full impact of people leaving the Island over the past year as the recession bites harder.
One supermarket spokesman estimated that about 3,500 people have exited Bermuda in the last 18 months accounting for a potential loss of some $35 million in grocery sales.
Jim Butterfield, president of Butterfield & Vallis, said that the effect of the departures had become more significant in the mid to latter part of last year, with a decline in retail sales due to fewer individuals and families buying groceries.
The Island’s dwindling head count has also been reflected in the growing number of rental units available and vacant office space in Hamilton.
Meanwhile the number of active work permit holders fell by almost eight percent in the last year from 10,127 people on one to five-year work permits at the end of 2010, 874 less than 11,001 for the same period in 2009, as revealed by Economy Minister Kim Wilson in November last year.
The spokesman for the MarketPlace said that the number of people leaving the Island had impacted the entire supermarket industry.
He said that despite food being a staple product, shoppers were becoming more selective in their choice and looking for special deals on everyday items rather than impulse buying.
The spokesman said that the supermarket chain had tightened the control of its wages and expenses, as well as keeping its supply and electricity costs down.
“We try to do the best to maintain our service to our customers and offer the best value for money,” he said.
Mr Butterfield said that overall his company’s sales were down but that was no surprise considering the state of the economy and that half of its business was to the hotel and restaurant trade.
But he said that Butterfield & Vallis had been doing everything possible to keep staff through managing its costs much more closely and cutting back on overtime, with employees working reduced hours.
“We are not packing up and going home but we are trimming where possible,” he said.
Mr Butterfield said that competition within the industry remained stiff despite being the biggest distributor on the Island, but he added that it was healthy for Bermuda overall.
One of the positives to come out of the economic downturn had been smaller levels of inflation in the food industry than in previous years, Mr Butterfield said, adding that he was taking a long-term approach to running his business with a tough year ahead in prospect.
John Tomlinson, president and CEO of Pitt & Company, said that business had held up well despite the economic downturn, with staff working harder to maintain those levels.
“Flat is the new up,” he said. On the issue of depleted numbers on the Island, he said: “We have definitely seen it and we have had to turn over a few stones to maintain our levels of business.”
Peter Aldrich, general manager of Stevedoring Services Ltd, said that the Hamilton docks which were the “pulse of the economy” had experienced a slowdown in business during 2010, with his company down this year.
“A lot of businesses thought last year was going to be the bad one but we are forecasting that 2011 is going to be even worse and the import numbers are actually playing that out,” he said.
Mr Aldrich said he had also seen an increase in the number of export containers during the past 18 months indicating that people were relocating from the Island, which had a knock-on effect with a decrease in the volume of containers being brought in.
He said that his company had taken steps two years ago to prepare for the fallout after noticing a downward trend in imported containers in November 2008, including tighter cash flow and expense management.
Buddy Rego, president of Rego Sotheby’s International Realty, wrote in his company’s January 2011 newsletter that rental prices had fallen on average 20 to 25 percent as a result of the gradual decline in demand and increased supply of homes between 2007 and 2010.
Mr Rego said that the two and three-bedroom condominiums had been the hardest hit by the downturn, with the market for $5,000 to $9,000 turnkey properties realising a 20 to 25 percent decrease in prices as the drop in demand fuelled supply, down to the pre-2007 condo building boom to accommodate the needs of ex-patriates coming to Bermuda.
But he added that the upper three-bedroom executive level of $12,000 and upwards had had the least effect on market prices as demand continued to be strong and supply was still scarce.
Mr Rego said that the lower end of the market inclusive of rent control properties felt a small effect from the downturn in the market with minimal increases generally below market rate, while smaller units not governed by rent control saw an average 10 percent drop in prices.
“The 2010 activity (to date) indicates that the residential rental market has levelled off in 2010 and the prices have remained stable in all the market levels,” he wrote. “Once the price adjustments have been accommodated for, the rental values are remaining level. The percentage adjustments may be five percent at most for prices that are still correcting themselves.”
In the same newsletter, Penny MacIntyre, manager of commercial sales and leasing, Rego Sotheby’s International Realty, said that 2010 proved to be a tenant’s market with landlords dropping their asking base rents by 20 to 30 percent and concession packages becoming the norm in protracted lease negotiations as landlords agreed to free rent periods and tenant improvement allowances for both dated and new construction spaces.
Ms MacIntyre said that asking base rents for Class A spaces ranged from $50 to 60 per square foot in the fourth quarter of 2010 compared to $56 to 65 per square foot in 2009, while office vacancies continue to climb from 2010 year-end rates of eight to nine percent with 2011 rates expected to reach approximately 12 percent as companies relocated to upgraded office space into less square footage at lower rents.
She said that with new construction projects such as 141 Front Street and Washington Mall Phase III coming online last year and companies either downsizing or relocating, the vacancy rate was expected to remain and even increase in 2011 with sublet spaces competing for tenants.
“Rents for quality space will hold steady assuming those rents have already adjusted approximately 20 to 25 percent lower from their 2007 rates,” she wrote. “The brunt of the rental downward pressure will be felt most by Class B and C office spaces in need of renovations and limited by dated building infrastructure and design.
“The majority of office leasing activity for 2011 is expected to continue to come from existing local and international businesses with leases set to expire in 2011 and 2012.”
Numbers from Coldwell Banker Bermuda Realty revealed that 78 residential rental properties were currently listed compared to historically “normal” levels of between 35 to 50 and highs of more than 100, excluding figures from for rent by owner.
Total listings for 2010 were above 300, up from 2006, 2007 and 2009, but below 2008 levels.
As far as commercial space was concerned the current inventory is around 400,000 square feet, which equates to approximately a three-year supply based on historical rental absorption rates, with the demand coming locally from companies deciding to upgrade at more affordable prices. A few companies have expanded their office size, while others have reduced or consolidated.
Coldwell Banker said there was currently no significant demand from external sources.
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