According to a recent analysis by a research institute, policy frameworks around industrial and commercial land use renewal are gradually taking shape, creating conditions for office-to-rental conversion projects to extend their operating lifespans and diversify asset exit strategies. In the near term, successful project implementation will continue to hinge on factors such as location quality, renovation costs, rental demand, and the specifics of renewal and exit arrangements, making it more likely that the sector will see progress through high-quality, case-by-case developments rather than broad-scale expansion.

As follow-up projects advance, the integration between land renewal policies, renovation operations, and asset securitization is expected to become more apparent, potentially leading to the formation of reproducible practices across the market. The institute noted that in recent years, several key cities have grappled with sluggish absorption, declining occupancy rates, or rental pressure in existing non-residential properties, including commercial office spaces and industrial parks. At the same time, certain underutilized properties located in areas with convenient transportation, clustered industries and populations, and well-developed surrounding amenities still hold significant potential for renovation and operational value.

For such assets, converting them into rental housing serves a dual purpose: it enhances the efficiency of underperforming properties while supplementing the rental housing supply in key areas. Over years of practice, the conversion of commercial buildings into rental housing has accumulated experience in areas like building function changes, project renovations, and recognition as government-subsidized rental housing. However, the land use tenure has remained a critical factor influencing long-term project operations and capital exit strategies. Some existing commercial and office land parcels have relatively short remaining tenures, meaning that even after renovation, projects might face insufficient operational periods, constrained asset valuations, and difficulties in matching the duration requirements of public REITs.

Consequently, the value of industrial and commercial land renewal policies lies not only in extending the land use period but also in providing the necessary timeline for long-term operations and capital exits for conversion projects. Since 2026, cities like Shanghai and Guangzhou have been advancing institutional frameworks for industrial and commercial land renewal, though their approaches differ. Whether commercial-to-rental conversions can move from isolated cases to scaled implementation will depend on whether conditions related to land, renovation, operations, and financial exits can be met simultaneously.

Renewal policies and building function changes provide institutional groundwork for commercial-to-rental conversions

In 2026, central government-level institutional arrangements for revitalizing existing assets and renewing land use rights became more defined. In March, the 15th Five-Year Plan Outline called for "improving laws and regulations on the renewal of industrial and commercial land use rights, and steadily advancing renewal work in accordance with the law," alongside plans to revitalize inefficient land and idle properties and promote reasonable legal changes in land use. In May, the Urban Renewal 15th Five-Year Plan further advocated for the lawful and steady advancement of industrial and commercial land use right renewals and refining land price calculation rules. It also emphasized promoting reasonable legal conversions of land use and building functions. These documents collectively provided direction for local governments to refine their own policies, touching upon asset revitalization, land use conversion, land renewal, and pricing mechanisms.

First-tier cities possess a substantial stock of non-residential properties, including commercial offices and industrial parks. Many idle projects boast features like prime locations, accessible transportation, and adequate facilities, making them suitable for adaptive reuse. Moreover, the high concentration of population and industry in these cities ensures stable rental housing demand, creating a favorable market foundation for non-residential-to-rental conversions. In recent years, various localities have explored functional conversions of non-residential buildings and rental housing renovations, though the specific policy tools and reform priorities differ based on land management systems, industrial structures, and urban renewal progress.

Shanghai's policy mix is most closely aligned with the full lifecycle of a conversion project. Its commercial building function compatibility policy addresses compliance during the renovation phase, while its industrial and commercial land renewal policy provides the tenure support needed for long-term operations and REITs exits. In June 2024, Shanghai released an action plan for commercial building renewal (2024-2027), targeting 40-50 renovation projects over three years. A subsequent implementation opinion in July 2025 allowed existing inefficient commercial buildings to incorporate rental housing functions for up to 15 years, provided the main body, property ownership certificate nature, and primary structure remain unchanged. In July 2026, Shanghai issued trial guidance on renewing land use rights for industrial and commercial projects, covering all types of non-residential land. It established the principle of "renewal as the norm, non-renewal as the exception, and renewing where applicable," and introduced a green channel for projects planning to apply for REITs, with renewal periods determined based on project specifics and renewal land prices set at no less than 70% of the benchmark land price.

Guangzhou, on the other hand, focuses on detailed procedures for land renewal. In April 2026, its planning and natural resources bureau issued guidance on promoting market-oriented allocation reforms for industrial and commercial land, along with a pilot scheme for renewing land use rights. These documents provide comprehensive rules on applicants, processes, renewal periods, and land premium calculations. The renewal of land use rights for the Guangzhou International Textile City has already been completed.

Shenzhen primarily relies on functional conversion to revitalize non-residential buildings. In March 2026, its planning and housing authorities issued measures allowing non-residential structures like commercial, office, factory, R&D, and warehouse buildings to change their functions without altering the original land nature, tenure, land user, or approved planning documents. These conversions are valid for five years, with projects on the positive list exempt from supplementary land premiums during this transition period, renewable for up to ten years upon expiration.

Beijing is currently more focused on using urban renewal incentives to support stock property renovations, with industrial and commercial land renewal still in the exploratory phase. In January 2026, its urban renewal policy toolbox (version 1.0) confirmed that non-residential buildings converted to subsidized rental housing can apply for municipal building scale index support, and projects that meet requirements could exclude structural floor heights under 2.4 meters from floor area calculations. It also called for actively piloting the renewal of existing industrial and commercial land use rights, with future policy formulation planned.

The Jiangyue Road project offers a sample for asset securitization, but renewal policy effects await validation

While renewal policies and functional conversion rules provide fresh institutional conditions for commercial-to-rental projects, these policies are still relatively new. So far, no new project has completed the entire sequence of land renewal, functional renovation, rental operations, and asset securitization under the new rules. The Jiangyue Road project, discussed below, is a notable example of asset securitization in this space, but its renovation and REITs issuance predated the 2026 renewal policies. Furthermore, the land tenure remaining at the time of its REITs issuance was relatively long, differing from the shorter remaining periods seen in many current stock commercial properties.

The Jiangyue Road project consists of three buildings located in Minhang District, Shanghai. Part of the Pujiang World Expo residential community, the project was originally planned as community office support facilities with a land nature of ancillary commercial housing and an office building function. It covers approximately 57,560 square meters and was completed in 2015. The property is owned by an investment company under Shanghai Land Group and operated by the group's Chengfang company, with clear ownership. For three years after completion, the property remained largely vacant due to market conditions and cost factors. However, its proximity to Metro Line 8's Jiangyue Road station, comprehensive supporting facilities like schools and shops, and its location near the Caohejing Development Zone's Pujiang High-Tech Park suggested strong rental demand potential.

The renovation journey began in 2017 when Shanghai issued guidance encouraging commercial projects on a rectification list to transition to rental housing. After assessment, the investment company applied for the conversion, receiving approval from Minhang District government in 2018. A supplementary land contract was signed that year, officially changing the building's nature from office to rental housing. The renovation involved approximately RMB 18 million from the investment company for infrastructure and about RMB 110 million from Chengfang company for decoration, totaling around RMB 130 million. In 2021, the property ownership certificate was updated to reflect rental housing use. In September 2022, the district's subsidized rental housing task force formally recognized the project as a subsidized rental housing development.

Operations commenced in May 2019 after renovation completion. The building's first two floors serve as commercial amenities (4,825 square meters), while floors three through twenty house rental units (52,734 square meters), offering around 1,080 apartments with predominant sizes of 28-58 square meters. Annual operating revenues were RMB 44.52 million in 2020, RMB 53.32 million in 2021, and RMB 47.51 million in 2022, which saw a temporary dip due to the pandemic. Current annual revenue consistently exceeds RMB 50 million with an occupancy rate of around 94%. The project's payback period was shortened by approximately ten years compared to the original estimate of 20 years.

In March 2025, the CCB Shanghai Land Rental Housing REIT received regulatory approval, with the fund taking effect later that month and listing on March 31. The REIT has a 65-year duration and raised RMB 1.362 billion, with public subscription multiples reaching 494 times, indicating strong market interest. The Jiangyue Road project's asset valuation stood at RMB 875 million.

Although the Jiangyue Road project benefited from favorable conditions like state-owned platform backing and a long remaining land tenure, its journey from stock commercial space to rental housing, subsidized housing recognition, and public REITs exit provides a relatively complete practical template for similar projects. The experience demonstrates that successful asset securitization depends not only on compliant renovation procedures but also on factors such as property rights, location and rental demand, renovation costs, operational performance, and remaining land tenure. For projects with shorter remaining tenures, whether renewal policies can effectively extend the timeline needed for long-term operations and capital exits remains to be validated through future cases.

It's also worth noting that public REITs are not the only exit avenue. In June 2026, the CICC-Bolin long-term rental apartment holding-type asset-backed special plan was issued, with underlying assets comprising serviced apartments converted from office buildings and commercial complexes. This highlights the potential for institutional REITs in the market-oriented rental housing sector. Compared to public REITs for subsidized rental housing, institutional REITs offer more autonomy in rent pricing, tenant selection, and operational models, making them suitable for well-located projects with strong operational capabilities that prefer market-based rental rates. However, differences exist in investor scope, product liquidity, and financing costs, and whether assets achieve fair pricing still depends on cash flow stability and market recognition.

Policy frameworks improve, but a project-specific investment framework remains essential for commercial-to-rental conversions

The refinement of industrial and commercial land renewal policies enhances the long-term outlook for conversion projects, yet policy support cannot substitute for thorough project-level financial analysis. For enterprises, determining investment viability requires comprehensive evaluation across renovation feasibility, land tenure, rental demand, operating returns, and exit mechanisms.

First, prioritize existing assets with solid renovation foundations and demonstrated rental demand. Focus should be on transportation accessibility, surrounding industrial and population clusters, supporting amenities, and building structural conditions. Commercial offices and industrial parks near transit stations, industrial parks, or employment hubs, with suitable ceiling heights, fire safety, lighting, electricity, and drainage, are more likely to generate stable rental demand at manageable renovation costs. Beyond location, it's crucial to verify property rights, potential mortgages or seizures, planning uses, and historical documentation to avoid complications from ownership or compliance issues.

Second, treat land renewal as a prerequisite in investment calculations. Remaining land tenure directly impacts sustainable operating periods, asset valuations, and capital exits. Before renovation, companies should clarify land nature, remaining tenure, renewal eligibility criteria, potential renewal periods, and land premium calculation methods, assessing renewal feasibility based on city-specific policies. Shanghai has proposed flexible renewal periods for projects planning REITs issuance, while Guangzhou has detailed renewal procedures and land price rules. Different policy paths carry distinct conditions and cost implications, so renewal possibilities should not be conflated with renewal outcomes.

Third, conduct long-term return projections that integrate both renovation costs and operating income. Evaluations shouldn't focus solely on post-renovation rent levels but must also account for renovation investment, project timelines, operational management expenses, occupancy rates, rental control requirements, and ancillary commercial income. For projects intended for subsidized rental housing designation, the impact of rent standards and operational mandates on returns must be considered. Projects merit further advancement only when renovation inputs, operating cash flows, and capital recovery periods are broadly aligned.

Fourth, select appropriate exit routes based on project characteristics. Projects meeting subsidized rental housing recognition criteria, with stable operating cash flows and land tenures supporting long-term holding, should focus on subsidized rental housing public REITs. For well-located, market-oriented projects seeking rent-pricing autonomy, institutional REITs warrant consideration. As institutional REITs differ from public REITs in investor scope, liquidity, and financing costs, achieving reasonable pricing depends more on asset quality, operational performance, and cash flow stability.

In summary, industrial and commercial land renewal policies improve long-term expectations for conversion projects, but scaled implementation still hinges on the simultaneous fulfillment of multiple conditions. Going forward, enterprises should establish screening and investment decision mechanisms based on four key questions: feasibility of conversion, renewal prospects, rental viability, and exit clarity. Project-by-project evaluations across different cities and property types will be necessary, prioritizing those with clear policy frameworks, controllable renovation costs, stable rental demand, and well-defined exit pathways.