Beijing’s top retail-to-office conversion

March 27, 2017 / By  

Over the past three years, we have seen five cases of conversions from retail space to office space in the Beijing market. In the coming few years, several more are likely to enter the market. What are some of the reasons for this? And what is the gold standard in the market today for a successful conversion?

1. Limited office supply

To encourage the development of the capital economic region, the Beijing municipal government is limiting new project starts in central areas. Converting existing buildings into office space is one way of adding supply to the market under this restriction.

2. Towering office rents

Beijing has the highest average Grade A office rents in mainland China. Recent JLL Research ranked each city’s most expensive building around the world and showed that Beijing ranks fourth globally.

3. Pent-up demand

Although demand for office space softened over 2016, new high-quality completions have filled up at an impressive pace, suggesting the need for top quality office space has not yet been met. Since the start of the decade, large-sized office buildings have typically reached at least 70 per cent physical occupancy within a year of handover.

4. Disappointing retail rent performance

Beijing’s fast-evolving retail landscape has caused some retail space to underperform. Department stores, especially, have lost out to trendier shopping malls. Office space in Beijing can command a higher rent than retail space that is not well-located. Also, vertical retail can be challenging, as rents drop off quickly above the ground floor. Therefore, many retail projects would generate higher, more stable income as office space.

5. No Grade A transactions

Sellers in Beijing have high price expectations and agreeing on a price with investors is difficult, which has led to a lack of en bloc trades for high-quality buildings in recent years. For investors that want exposure to the Beijing office market, buying a struggling property and employing a value-add strategy can be a better option.

Pacific Century Place, a prominent mixed-use project in Sanlitun, had a department store anchor for many years. The department store suffered a sharp fall in customer numbers after the fashionable Taikoo Li retail area opened across the road in 2008. After several years of high vacancy, and a change of ownership, the new owners renovated the project as office space. These renovations were more extensive and far-reaching than other conversions in the city and the resulting office space proved superior in many areas, summarised in the chart below.


To date, Pacific Century Place is the only retail-to-office conversion in the city that meets Grade A standards and is an inspiration for others to follow, given that the time for conversions in the market is ripe. Our research records over 50 measurements at office buildings in Beijing to determine grades, covering office usability, the lobby area, corridors, bathrooms, lifts, transportation links, property management, and more.

The conditions of Beijing’s office market make retail-to-office conversions attractive and if investors have the required expertise, value-add strategies can be a good way to increase investment returns.

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