Interest in Island Addresses
Spurs Growth in Bermuda

New office buildings are rising near Bermuda's pastel-colored shops and hotels, a response to growing demand from insurance companies and hedge funds that are paying big-city prices for island addresses.

As much as 750,000 square feet of new office space is expected to be completed through 2010, according to Graham Smith, a commercial representative with Coldwell Banker Bermuda Realty. While that could be contained in a single New York skyscraper, it amounts to a 20% increase in total inventory for Hamilton, the capital of this group of islands in the Atlantic. About one-quarter of the new space is speculative, he says.

Businesses that are expected to fill those buildings aren't just in Bermuda for its pink-sand beaches. A British territory, Bermuda has a population of about 66,000 spread across about 21 square miles. It has no corporate income tax. That has long made it a preferred offshore financial center. Favorable laws and demand boosted by such catastrophes as 9/11 and Hurricane Katrina have also made it an insurance hotbed. Yesterday, Bermuda held a general election.

Its appeal includes a streamlined regulatory structure that makes it possible for a new commercial insurance company to get licensed and open for business in Bermuda within about two months, compared with what could be a five-year, multi-state licensing process if that new company chose to locate in the U.S., according to Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers.

Of course, the allure of such tax-havens has a potential downside: The U.S. Internal Revenue Service has recently stepped up its efforts to scrutinize whether companies are using offshore operations to improperly avoid paying taxes. But Bermuda has a long tradition of vetting companies seeking to incorporate there, going back to 1939, when it worked to prevent money from Nazi Germany from entering Bermuda, said Cheryl Packwood, chief executive of the Bermuda International Business Association.

The real estate doesn't come cheap. Prime office rents can rival some buildings in midtown Manhattan. They're as high as $80 a square foot in Hamilton, where many financial companies are located.

One of the largest new office projects under construction is Victoria Place in Hamilton. The $55 million complex is the first to be built by Bermuda-based Purvis Projects Ltd., a development company. Asking rents for the office space have been about $60 to $70 a square foot, according to Alan Gamble, president of Victoria Place, the project's owner. However, all space has already been leased to such users as Ariel Reinsurance Co. and a unit of Lombard Odier Darier Hentsch, a private Swiss-based bank.

Ariel Reinsurance is a typical Bermuda office tenant. The Bermuda company and its parent, Ariel Holdings, were first set up in 2005 with about 16 employees, and they have since grown to employ nearly 60 people in Bermuda. To accommodate that growth, the companies sill soon move from their current offices into about 30,000 square feet in Victoria Place, according to Jon Beck, executive vice president of Ariel Holdings. But the rising cost of working and living in Bermuda could damp continued commercial growth in the island. "The advantage of being here will at some point be offset by the cost of doing business here," says Mr. Beck.

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