Blackstone's purchase of Chicago's iconic Willis tower, for $1.3 billion, marks the
highest price paid for a U.S. office building outside of New York City. The question is, what do they plan to do with it?
New York-based Blackstone enters a roaring leasing market in downtown Chicago. Like many downtowns, the city's Loop and surrounding commercial neighborhoods are seeing an influx of tenants as businesses increasingly flock to the central urban locations coveted by young talent.
According to JLL, in 2014 Chicago had 9.5 million square feet of office space leased—a 15.4 percent increase over 2013 and the first time that leasing in the city surpassed the 9 million square feet mark since 2008. And leases by tech sector tenants accounted for 1.5 million square feet, a 28 percent jump over 2013's levels.
"We are seeing companies from the suburbs either moving to downtown Chicago or adding a second office," says
Steve Smith, a leasing director at JLL. "This is driven by the hunt for talent as Chicago is attracting more young people and is gaining a reputation as a great place to live, work and play."
At the same time however, office buildings are scrambling to update their facilities to accommodate shifting tenant preferences, and many large properties continue to face stubborn vacancies. The Willis, formerly Sears, Tower is just 84 percent leased.
Still, the 110-story, 3.8-million-square-foot skyscraper has assets that other properties could only dream of, including cachet. The Willis is the fifth tallest building in the world and boasts the Skydeck, a viewing platform with a popular glass ledge that attracts more than 1.6 million visitors each year.
But to eliminate its office vacancies, the Willis may need to assess how well its space aligns with contemporary tenant expectations. Like many iconic office towers, Willis was built long before open floor plans and sustainability became tenant priorities. Another Chicago landmark of the same era, the John Hancock Center, made news this week
with plans for a potential name change and various design updates.
"We are seeing companies adapting their workplaces and requiring new workplace configurations and space to accommodate their employees," says Smith.
With the race to attract tenants, Smith says he is seeing an uptick in renovations. Property owners are making lobby improvements and adding roof-top spaces, tenant lounges and amenities such as bike storage rooms.
Blackstone hasn't said much about its plans for the office space, but in a recent
Chicago Sun-Times article Jacob Werner, a managing director at Blackstone's real estate group, said the firm saw "great potential in further improving the building's retail operations and the tourist experience for one of the most popular destinations for visitors to Chicago."