Rating agency AM Best last week reported a lack of intellectual capital and office space could make it difficult for the Bermuda market to sustain the current insurance boom. But Hamilton developers and realtors are saying the real problem may not be a void of office space overall but a lack of the top of the line office spaces being sought by international companies.

Coldwell Banker's Graham Smith told The Royal Gazette: "At this time the demand for prime commercial office space is much stronger than the demand for secondary, older space. The strongest demand is for waterfront space such as Waterfront Properties and the old ACE building.

"Demand is also reasonably strong for newer office buildings that are within close proximity to that same area of town. Vacancies in this general location are very low due to the strong demand created by the new reinsurance companies that set up in Bermuda after September 11, 2001."

Mr. Smith added: "Most properties are rented and the level of available space has dropped considerably in the past nine months."

And developers have stepped up to the bat given the demand for prime commercial real estate rentals with several commercial projects in the works including plans for development of a seven-storey office building on Court Street and the possibility of two separate development projects at the East end of Front Street.

Mr. Smith said: "If Bermuda is to continue to have positive economic growth, new office development will be required to sustain the supply. Most office tenants prefer space that has natural light, with a nice entrance foyer and in a central location close to parking, restaurants, shops, gyms and hotels."

One developer, Fernance Perry, told The Royal Gazette he has had no problem renting out space in either Wessex House or his other property Sophia House.

Wessex House came online in early 1998 and is considered prime "AAA" space, according to Mr. Perry. Despite that Mr. Perry has seen some shifting and changing of tenants as companies have downsized or expanded into larger spaces.

Global Crossing, for example, at one time occupied one and a half floors of the plush Wessex House - complete with centrally placed skylights that bring natural light in to the core of the building and an underground car park - but now occupies a small office by the back exit stairwell.

Two floors of Wessex House were also, up until the new ACE and XL buildings came online, home to ACE Tempest Re and a division of XL.

Despite these companies shifting out of the building or minimising their presence, Mr Perry said: "I can tell you our buildings are full. We have had no problem in getting tenants." One of the new tenants included at least one of the new insurers to ride in to Bermuda on a wave of new insurance business opportunities - Arch Re.

Another space, yet to be vacated, was also snapped up: Max Re in Ascot House on Queen Street has already been spoken for by a new tenant pending Max Re's move into its new headquarters at number two Front Street early next year.

Although Max Re House, which is next to Barr's Bay Park and across from the new XL development, is still under construction, their Queen Street address was jumped at months before being vacated including furnishings, according to the company.

Max Re said it hoped to be moved into the new building by March 1, 2003.

In contrast veteran developer Sir John Swan cited the current market "as being a bit soft" but conceded that there had been steady demand for the high-end rental spaces including special air systems.

Sir John Swan owns the John Swan building on Victoria Street as well as the recently completed Bermuda Commercial Bank. In addition he is currently building residential units in Hamilton as well as looking at development of another commercial office building at the Eastern end of Front Street.

This week Sir John said the commercial market was "a bit soft at the moment" with companies, such as Global Crossing, Tyco and Concert, downsizing or shutting down.

Looking at his own properties, Sir John said the Bermuda Commercial Bank building is fully occupied but within the John Swan building he still had some space available with the sudden vacancy after the joint telecom venture between BT and AT&T - Concert - went belly up.

"There are no real large units available at the moment which could deter some companies from coming here. But there was also a lot of property dumped on the market at the same time as some companies have downsized, or not expanded as much as they thought they would. And others have moved into new larger spaces leaving their former space vacant," he said.

Sir John said further development of commercial space was warranted if the Island was going to cater to international business and the desire for upmarket, state of the art properties.

"Companies today want modern, contemporary spaces down to the fittings in the bathrooms. And that are also safe workspaces including proper air flow.

"Image is part of the process, there is heavy competition and the space must fit the business' image...

"And it is a given that technology is part of that including fibre optic facilities, computer cabling and a generator in case of power outages. These companies cannot afford to have any downtime," he said.

Speaking further on the safety front, Sir John said he had seen an increasing demand from tenants for air management, including some tenants moving out of older buildings and into newer spaces that are fitted with special air management systems.

And Sir John said it would be necessary for older building to retro-fit and upgrade their space if they wanted to attract tenants from the international business sector.

He added that Bermuda legislation is behind the times in not making certain safety standards - including fresh air management - mandatory in office buildings.

At the end of the day, Sir John said the success of Bermuda as an international business jurisdiction would depend on how well we facilitated that sector.

"We have to act on a timely basis, and have to become more sophisticated," he concluded.