Property developer Sir John Swan said the Government was right to grant permission to XL Capital and American International Group to sublet part of their Bermuda headquarters to other companies.

The former Premier said XL's decision to rent out the office space in the North Tower of XL House would have an impact on the commercial real estate market.

But Sir John, who is in the process of building ten-storey Seon Place at the eastern end of Front Street, said the granting of permission for XL and AIG to sublet was better than the alternative.

"Any capacity coming on the market will have an impact," Sir John said.

"Both companies are here in Bermuda. The companies can be foreign-owned, but the property is local.

"We want their buildings to be properly maintained and we don't want them to look like a ghost town. We can't put our heads in the sand and say it's not happening.

"Circumstances change and you have to adapt. You can't be selfish about this. What the Government has done is probably the best solution."

"Exempt" international companies are not allowed by law to do business in Bermuda. But there is provision for the Finance Minister to grant special dispensation to such companies to sublet their local real estate.

As The Royal Gazette reported last week, the Island is facing an over-supply of commercial real estate as a number of new office buildings near completion and the economic downturn weakens demand.