As Vacancies Grow in Denver, Office Towers Go On Auction Block
Minimum bid is $9M for 31%-occupied, 24-story DC Building, less than a third of what Unico paid for it.
With office vacancies growing and leasing activity slowing down in Downtown Denver, another struggling high-profile office tower is heading for the auction block in the Mile-High City, the second in less than two months.
The 24-story DC Building, a 275K SF office building that is less than 31% occupied, will be sold by owners Unico Properties and Goldman Sachs at a two-day auction on the CRE platform Ten-X scheduled to kick off on Aug. 22, according to a report in BusinessDen.
The minimum bid for the property has been set by the owners is $9M, less than third of the $30M Unico spent to acquire the DC Building in 2015. In 2018, Unico invested another $10M on renovations on the building, located at 518 17th Street, including the addition of a bowling alley.
DC Building is home to The Denver Club, the city’s oldest private social club, which acquired a 99-year lease for the top floors on its namesake building in exchange for the site of its former home. The club’s venue was a brownstone that was demolished to make way for the office tower.
In a transaction resulting from a foreclosure, the twin office towers of the Denver Energy Center sold at auction for $88M last month to JPMorgan Chase Commercial Securities Trust, the lone bidder.
According to a report in BusinessDen, the sale price for the two towers, which are 28 and 29 stories tall, represented a 50% reduction from the last time the Denver Energy Center traded.
In Q2 2022, office vacancies in Denver rose by a higher-than-expected 70 bps to reach an average of 20.6%, according to an office market report for the quarter from Cushman& Wakefield.
With tenant downsizing outpacing expansions, vacancy increased in both the Central Business District (CBD) and non-CBD submarkets in Denver in Q2, with CBD vacancies increasing at a more accelerated pace to 26.4% in the quarter, C&W reported.
Metro-wide office leasing activity in Denver slowed in Q2 2022 to about 1.8M SF, dropping off from a post-pandemic high of nearly 2.5M SF in Q1. Activity in the CBD and Southeast Suburban submarkets dropped 32.6% and 45.3% QoQ, respectively.
Average asking rents in Denver’s CBD have been trending downward in the past year—unlike the overall Denver metro, which posted a modest 2,1% increase to $31.36 per SF from the average a year earlier—dropping 2.3% YoY to $38.26, a decrease that has been underpinned by the proportionate increase in lower-priced space in the CBD, C&W said.
As tenants reduce office footprints, subleasing availability in Denver has surged to more than 5M SF in H1 2022, levels not seen since pandemic lockdowns.
Higher leasing volume and more sustained occupancy in Class A office space is supporting more stable vacancy rates, while Class B vacancy has been more volatile due to lower leasing volume and much higher negative absorption, according to C&W’s Q2 market report.