The commercial real estate market in Bermuda continues to soften, but interest is picking up, at least in two areas.This according to Rego Sotheby’s International Realty, which says it’s seen a flurry of interest in tourism properties and renewed demand for prime retail space in Hamilton.However, there’s now five times as much office space on the market as there was in 2007 and about 20 commercial properties (offices, land, tourism) island-wide that are up for sale.“Despite office space vacancies hovering at 10 percent thus far this year, just up from 2010 year-end rates of eight percent to nine percent, the last quarter has experienced increased interest, particularly for ground level retail space with high visibility and exposure to local foot-traffic- making Reid Street in particular the choice among new and relocating retail operations,” Rego Sotheby’s says in a new report.Vice president of commercial sales and marketing Penny MacIntyre called the area of Reid Street between Queen and Burnaby Streets the “sweet spot” for the retail sector.Mrs MacIntyre said asking retail rents have come down in the past few years to around $50 a square foot, from the high $60s up to $70 and even $80 a square foot.She said the realtor has also seen a “peak in interest by international investors and developers in Bermuda hotel properties”, including the former Sonesta resort site, distressed properties, and some properties that are not actually on the market.In the commercial rental market, Mrs MacIntyre said that within Hamilton alone, approximately 500,000 square feet of office space is on the market now which does not factor in sublet opportunities.She added: “There are spaces tenants are currently ‘mothballing’ as some companies determine whether to keep the same space or await a lease renewal to either downsize or relocate.“Therefore the total available commercial space in Hamilton is north of 500,000 square feet currently compared to 106,000 square feet in 2007 the difference greatly impacted by the combination of the economic downturn which continues to hinder rental demand and coinciding with the nearly 520,000 square feet of newly constructed office buildings which came online in Hamilton within the last two years.”In addition, Rego Sotheby’s says commercial sales have dropped significantly in pricing and volume.Average sales prices have fallen by 74 percent off the 2007 average pricing of $2.75 million per unit/building sold, to 2011 to-date of $1 million per unit/building sold.“The low rental demand and ever increasing inventory of vacant office space have negatively impacted rental values and commercial property resale values, thereby causing investors to carefully access whether to buy now or hedge their bets that values may continue to experience further downward pressure,” the report said.“Sellers recognise the market is not in their favour and generally opt not to sell unless necessary or because they simply wish to test the value of their property on today’s open market.”The report continued: “Commercial transactions in the first half of 2011 demonstrated the ever increasing strength of lessees as lessors exercised creativity to retain, lure or secure tenancies. Negotiated terms were not limited to the 20 to 30 percent reduction in base rents and the concept of standard lease terms or market practices continued to evolve in support of tenants as lessees sought longer free rent periods also known as rental holidays, landlords increased offerings of contributions to tenant improvement fit-outs, flat or fixed rents over life of lease, renewal and early termination options.”Landlords can expect inventory to remain on the market two to three times longer up to six to 12 months in prime locations of Hamilton and eight to 18 months in perimeter areas of Hamilton and Pembroke.Asking base rents for Class A spaces have softened by five percent off 2010 year-end rates to $47.50-$57 per square foot.