A decade after terrorism fears made Sears Tower a no-go zone for tenants, the Western Hemisphere's tallest office building is showing signs of recovery.
Leasing plunged nearly 20% after Sept. 11, as rumors swirled that the 110-story building was next on terrorists' target list. Major tenants Goldman Sachs Group Inc. and Ernst & Young U.S. LLP defected, and real estate brokers struggled to persuade others to even consider the 1,450-foot-tall tower at 233 S. Wacker Drive.
Currently 82.8% leased, the building is still far from its pre-Sept. 11 peak of nearly 98%. But brokers say they're noticing a change in attitudes toward the recently renamed Willis Tower. Some aggressive rent offers, along with the headline-grabbing 2009 decision by United Airlines to rent more than 600,000 square feet, gave the building a boost. These days, tenants are at least willing to consider moving there.
“People look at it today more favorably than they did right after 9/11,” says David Matthews, a Jones Lang LaSalle Inc. executive vice-president who represented United Continental Holdings Inc. in its move there. “People don't talk about it in terms of 9/11 anymore. They see it as a prominent building in downtown Chicago.”
Willis Tower matters to all of Chicago because of its impact on business, real estate, tourism and the city's image. A struggling, lightly occupied Willis Tower could depress leasing rates throughout downtown.
The tower's owners, Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinan, are ready to cash in on the building's improving image. They've listed it for sale at $1.5 billion, nearly twice what they paid in 2004. Real estate experts say they'd be lucky to get $1 billion.
BIG NUMBERS
Every weekday, 8,000 to 10,000 people work in the tower, and 1.4 million visitors are expected on the 103rd-floor Skydeck this year. That would be a 40% boost since the Ledge, a set of glass balconies with a view 1,353 feet straight down, was added in 2009.
Willis Tower was 97.6% leased at the end of 2000 but bottomed out at 78.5% in late 2006. The nearly 3.8 million rentable square feet was 93% leased at the end of 2009 and ended 2010 at 87.5%.
The key challenge is to lease the 315,000 square feet vacated by investment bank Goldman Sachs in 2005. No large-scale leases expire in the next three years, says Michael Kazmierczak, a senior vice-president at leasing agent U.S. Equities Realty LLC.
The biggest new tenant in years, United Continental, is moving 3,800 employees into 650,000 square feet on 12 floors by mid-2012. In doing so, United is absorbing much of the 387,000 square feet accounting firm Ernst & Young vacated in 2010. Brokers note the symbolism of an airline moving in.
“When United committed to move in, I think a lot of people thought, if they're moving in there, the security must be resolved,” says Rick Schuham, a executive vice-president at New York-based Studley Inc. who represents tenants. “I think that was a game-changer for them.”
Other big leases extending into the mid-2020s are London-based Willis Group Holdings PLC, which obtained naming rights in a 2009 deal for 140,000 square feet, and law firm Schiff Hardin LLP, an original tenant, with 217,000 square feet.
BELOW-AVERAGE
The tower's 82.8% occupancy rate is the worst since 2008, when the recession and real estate collapse sent commercial office vacancies soaring across the country. The Class A office occupancy rate downtown is 83.7%, according to Washington, D.C.-based real estate data firm CoStar Group Inc.'s mid-year office market report.
Inking new deals has required lower rents and other concessions, including a nearly $36-million subsidy from the city of Chicago for United. Long-term leases are now $15 to $20 per square foot, with the building offering $50 to $80 a foot in improvements and about a month of free rent for every year on the lease—all fairly standard, brokers say.
“I am still not sure the story would be as positive without the incentives that have been provided to tenants such as United,” says Thomas Volini, an executive vice-president at London-based Colliers International who represents tenants.
Read more: http://www.chicagobusiness.com/article/20110903/ISSUE01/309039974/willis-tower-starts-to-shed-terror-fears-10-years-after-sept-11#ixzz1XBRhEhvY
Stay on top of Chicago business with our free daily e-newsletters
