The global economic slowdown has altered the dynamic in the commercial property market, according to local realtors, with tenants now assuming more power in lease negotiations.

While the top end of the market is still among some of the most expensive commercial real estate in the world — with landlords asking $85 per square foot for prime space — realtors said there is now more room for negotiation on terms, prices and tenant favourable clauses.

One notable difference about the Bermuda market, however, is that supply is always going to be capped in a sense by the Island's small size, said Susan Thompson, agency manager for Coldwell Banker.

"With the financial world in distress and the fallout for Bermuda unpredictable, people are naturally cautious about the future of commercial real estate," she said. "There is one reality in Bermuda: office space and land on which to build is a limited commodity."

Ms Thompson said she has yet to see a downward pressure on the market from the global economic crisis but does not rule it out in the future. "At the moment I would say the market is staying flat and consistent," she said.

Many of the new buildings which have gone up around Hamilton already had pre-leasing agreements in place, she said, with new tenants set to move into 50 to 65 percent of the space, before financing arrangements for construction could be made. The rest of this space can be filled at a more leisurely pace. "By the time a building nears completion it is usually fully rented," she said.

Those who have agreed to pre-lease these properties before the crisis may now regret the terms they took on, but these leases are legally binding.

Penny MacIntyre, commercial sales and leasing agent at Rego Realtors said some of the newest buildings proposed or under development are now finding it much harder to find that "anchor" tenant and to secure financing.

She said she is seeing fewer companies looking for space and, those that are looking, are searching for smaller spaces at more competitive rates. "Now you have choices," Ms MacIntyre said.

The biggest change as a result of the economic crisis, she suggested, is that companies simply are not doing to long-term planning with often accompanies a move to a larger office due to all the uncertainty.

"It's now harder to make forward planning commitments on new spaces because of the market conditions," said Ms MacIntyre. "Companies are sitting tight."

As a result, landlords are getting nervous, she said, and starting to work a little harder to find tenants and are more willing to negotiate on terms.

Deals are also taking longer to ink, as more time is spent looking for the right space and negotiating terms. Space is staying on the market longer as the demand slackens and those seeking properties become more cost conscious.

Ms MacIntyre said we may see more pressure on prices to fall as lease renewals come up in this new climate of economic uncertainty. But, despite the large number of properties coming online as the word recession dominates headlines, Ms Thompson said she believes the Bermuda market will absorb the space. The bulk of new building will not be ready till 2010 and a lot can change between now and then, she said. The number of companies moving to the Island may be slowing to a dribble but local companies are also looking to expand their facilities.

"We have seen an increase in existing office space supply, typically in the 3,000 to 5,000 sq ft range and can expect to see a reduction in the 750,000 +/- sq ft of new office expected to be added to the available stock in the next three years, but are not forecasting a huge, over supply of empty office space," she said.

She expects landlord returns will still remain strong. "Any slowing in demand will be short term with the mechanisms we see in the financing side of our market," she said.