As cities across the United States look to revive their lanquishing downtowns, Denver has decided to take matters into its own hands.
City officials are moving forward with plans to acquire a high-profile office building leased to The Denver Post for $89.5 million, according to a proposal headed to the city's Finance and Governance Committee next week.
The city would buy the building at 101 W. Colfax Ave. in hopes of filling it with government workers who might bring new energy to a central business district battered by high vacancy rates and little demand for empty office space.
"I'm actually excited that we are purchasing real estate, particularly in our city center," said District 10 Councilmember Chris Hinds, who represents the Central Business District, in a statement. "Denver is showing a commitment to our city center."
Denver's initiative is the latest by a major city looking to turn around its ailing downtown. Cities such as New York, Pittsburgh, San Francisco and Washington, D.C., have taken various approaches to getting people back into downtown workplaces. Some are jawboning employers to implement stricter in-office policies or cut back on flexible work days, while others have looked to update zoning codes or eliminate the barriers to converting empty office towers into alternative uses.
San Francisco Mayor London Breed, for example, recently asked the city's public sector to move some government employees to empty office buildings scattered throughout the financial district. She's hoping the move might persuade other prospective tenants to reconsider the market.
“As the largest employer in the city we can lead on recovery by investing in high-quality office space for our workers,” Breed recently wrote in a letter to the city's Board of Supervisors, adding that the shift to hybrid work has “resulted in an overall reduced demand for office space and correspondingly lower rents for high quality buildings.”
Under the plan before Denver lawmakers, the city would buy the 101 West Colfax building from New York-based American Properties under a deal that has yet to be finalized. If sold for $89.5 million, the price would be less than what the property went for in 2006, underscoring the challenges landlords in U.S. office markets are facing as valuations drop and interest rates are at an all-time high.
The previous purchase price for the 11-story, 340,538-square-foot Denver Post building was a little more than $93.4 million, according to property records, or roughly $274 per square foot.
Similar to other major cities throughout the country, the situation in downtown Denver has become increasingly dire as downtown office vacancy rates have shot up to nearly 29%, according to CoStar data, a figure that has continued to climb as tenants across myriad industries offload large chunks of space and downsize their real estate footprints.
To further exacerbate the city's vacancy issues, most of Denver's sublease availability is concentrated in downtown neighborhoods, much of which is offered at a significant discount compared to directly leased space.
'Dim' Versus 'Bright'
While leasing activity is just a fraction of what it was prior to the pandemic, Denver's government sector has been a rare bright spot for the city in helping to fill some of its largest vacancies. Hiring in the government sector has picked up in the past year as the local government works to get back to pre-2020 staffing levels, CoStar's Denver Director of Market Analytics Jeannie Tobin said.
Those new jobs have boosted the sector's demand for physical office space, and in one of the largest leases so far this year, the city of Denver signed a 10-year deal in September for just shy of 74,000 square feet at Brookfield Properties' Republic Plaza tower.
The Denver Post holds the master lease for the entire Colfax Avenue building through 2029, an agreement that generates more than $7.25 million annually, according to public filings. However, the newsroom staff moved out of the property nearly half a decade ago, and the paper's owner has since tried to sublease the downtown space.
The city already subleases nearly half of the Denver Post building in a deal that accounts for about 145,000 square feet, Finance Department spokesperson Laura Swartz said. Once it takes ownership of the building, the city would look to move more employees in.
The pending purchase still requires City Council approval, a decision from which is slated for sometime in March 2024.
Denver is "bullish on downtown," councilmember Hinds said, adding that the property purchase would help determine whether downtown's future is a "bright one or a dim one. We intend to create the downtown that people want to visit."