Tall & Urban News

United Airlines is shrinking its Willis Tower headquarters, where it has about 30 percent fewer workers than before the COVID-19 pandemic.

The airline today confirmed on 27 January 2021 it has exercised an option to give back about 150,000 square feet (13,935 square meters) it leases across three floors at the city's tallest tower. The move by one of the single-largest office tenants in the city will go into effect in January 2022 and reduce its footprint in the building by about 17 percent.

The space-shedding comes in the wake of mass job cuts at the company, which, like many businesses tied to the travel industry, has struggled through more than 10 months of coronavirus-decimated demand. United said in October that more than 2,500 white-collar jobs eliminated since March 2020 were likely gone for good, particularly in "management and administrative" roles. Many of those jobs were based on the three floors United is vacating at Willis Tower, where the company had about 5,000 employees before the pandemic. Today it's down to about 3,500 workers based at the building, United said.

"Due to the unprecedented impact the COVID-19 pandemic has had on our industry, United continues to find new ways to become more efficient as we continue to navigate through this crisis," United spokeswoman Rachael Rivas said in a statement. "As a result of being a smaller airline and a reduction in our workforce, United will be consolidating its operations at its Corporate Support Center at Willis Tower in Chicago by three floors so that we can ensure we are utilizing our space as efficiently as possible."

United renewed its commitment to more than 850,000 square feet (78,967 square meters) across 17 floors at the skyscraper less than two years ago, extending its lease by five years through March 2033. The company said at the time it planned to spend "hundreds of millions" of dollars renovating its space over several years.

The pivot to reduce its space now comes as no surprise, given the company's drastically smaller headcount. But it still deals a gut punch to Willis Tower owner Blackstone Group and other downtown office landlords that are already saddled with the highest vacancy rate on record, according to brokerage CBRE.

That surge has been exacerbated by a record-setting amount of space available for sublease, both from companies coping with layoffs like United and others rethinking their workspace needs after finding they can get by with many employees working remotely.

Among the recent leasing carnage: The cost-cutting Chicago Tribune and its parent company told employees this month they will vacate a 137,000-square-foot (12,727-square-meters) office the publisher opened at Prudential Plaza in 2018. The media company's newsroom is moving to the Tribune's Freedom Center printing facility along the North Branch of the Chicago River.

With examples like those and little clarity about what demand for office space will look like once the pandemic subsides, it's likely the large swaths of available space will force office landlords to lower rents or boost concession packages to be able to recruit tenants.

Blackstone Group joins that mix of landlords with big blocks of available space with United's move, though the building is about 95 percent leased today. The private-equity giant, which bought the 110-story tower for US$1.3 billion in 2015, is several years into a US$670 million renovation that includes upgrading elevators, adding new tenant amenities and building a 300,000-square-foot (27870-square-meter) addition around the tower's lower floors.

A spokesman for Willis Tower couldn't be reached.

United moved its headquarters to Willis Tower in 2008 and has its central operations center in the building. The company said in 2019 that it intended to eventually relocate nearly 500 of its other Chicago-area employees to the tower from its old headquarters at 77 W. Wacker Drive and a building in suburban Elk Grove Village.

Rivas said United does not plan to relocate any Willis Tower-based jobs to other locations as part of the space reduction.

Shares of United closed yesterday at just more than US$41, 47 percent lower than its stock price a year ago.

CEO Scott Kirby, who took the company reins in May 2020, told industry analysts during a conference call last week that United doesn't expect it will top its pre-pandemic profit margins until 2023. But he also framed the brutal past year with a silver lining in that it "forced us to look at hard ways to change the business and become more efficient."

"2020 was a year of going through hell, but we kept going," Kirby said during the 21 January, 2020, call. "And a few years from now, at United, we'll look back at 2020 as the year that gave us the opportunity to structurally change the airline for the better."

For more on this story, go to Crain's Chicago.