By Alison Leung
HONG KONG (Reuters) - Hong Kong's 110-year-old Wallem Group, among the world's top five ship managers, will set up shop in a proposed $45 billion business zone in the southern Chinese port city of Shenzhen as rents in the former British territory soar.
Besides using the Qianhai zone as a springboard to opportunities in China's shipping market, Wallem is also looking to fork out less than a quarter of the rent it pays in Hong Kong, which is just an hour's drive away by car.
"We, like most other service providers in Hong Kong, work on very tight profit margins," said Jim Nelson, managing director of Wallem's ship management arm.
"We cannot continue to have margins squeezed by what we pay in rent, and whatever else in our offices, or there is nothing left," he told Reuters in an interview at Wallem's headquarters in Quarry Bay, an industrial-turned-commercial district.
Wallem will open an office in Qianhai by June to manage ships from Shenzhen, the world's fourth-busiest container port, trailing Hong Kong at No.3. The company would start off with 11 employees.
Set up by Norwegian ship broker Haakon Wallem in 1903 in Shanghai, Wallem started its business in Hong Kong in 1925 and now has offices in 20 countries.
Its ship management business has been booming as ship owners seek help in a market downturn. The number of ships under Wallem's management globally grew 53 percent to 415 at the end of last year from end-2008.
Ship management accounts for about two-thirds of its revenues, while ship agency, broking and advisory services, as well as maritime IT solutions, make up the rest.
"Hong Kong is expensive rent-wise, and we don't see that is going to change in the short term," Nelson said. "Hong Kong is doing everything it can to drive businesses out of Hong Kong."
Hong Kong leader Leung Chun-ying gave his maiden policy speech on Wednesday, announcing measures to boost land supply but no immediate steps to rein in prices. He acknowledged that sky-high prices were hurting the city's competitiveness.
The city's office market is the priciest in the world, with the cost of occupying an office in the financial district of Central at $246 per square foot per annum, 12 percent more than the West End of London, which ranks second, property consultancy CBRE said in a December report.
Wallem has more than 200 staff in its Hong Kong headquarters and plans to gradually move more of its operations to Qianhai.
"We plan on staying here but we will continue to look at other options of course," Nelson said.
China, aiming to reignite growth and eventually establish a financial market on a par with New York or London, is handing out preferential policies to attract investors to the 15-square-kilometre economic zone of Qianhai.
"The people we have met in Qianhai are very interested to have a big name ship management company establish operations there and have been very supportive to date," said John Wood, director of operations at Wallem Shipmanagement Ltd.
"They are very eager to secure premium brands and the timing falls nicely with our group's present expansion plans."
Qianhai's proximity to Hong Kong and links to airports and railroads are key to achieving its goal of becoming an international shipping and financial services centre.
The Qianhai business will be the company's first wholly owned ship management company in China.
But the company would like to take a cautious approach.
"At the moment what we have received is a lot of promises," Nelson said. "So we are going to dip our toe into the water, see what happens and then take it from there, based on our experiences."
(Editing by Anne Marie Roantree and Ryan Woo)