Now that Amazon has narrowed down the nearly 240 potential sites bidding to host its second corporate headquarters, it will be a closely-watched competition for the 20 locations across North America that have been short-listed. The stakes are high for cities, counties, and states wooing the giant e-commerce retailer. Namely, a $5-billion investment by Amazon into the creation of HQ2, a facility that aims to rival its main headquarters operations in Seattle, and the addition of 50,000 employees.
Commercial real estate brokers will be expected to play a key role, once the site selection decision is made this year. That will include helping guide property owners directly involved, as well as providing advice on ways to capture new opportunities for surrounding properties. The decision carries enormous weight and will create lasting impacts in the market.
As a West Coast brokerage company, Kidder Mathews’, who is headquartered in Seattle, has distinct insights gained from having a front-row seat as Amazon expanded its footprint in the Puget Sound. The company helped represent Amazon in its first office lease in downtown Seattle’s Columbia Building in the 1990’s. Kidder Mathews’ brokers Rod Keefe, Jim Kidder and Ted McCaffray worked on the 20,000-square-foot deal when Amazon brought its distinct corporate culture with desks made up of doors and sawhorses to its non-standard workspace.
At the outset, it is important to consider why having such a highly-visible and rapidly-growing corporate entity located in a city is valuable to a local economy, as well as public perception. Amazon’s request for proposals last fall created widespread attention in what may well turn out to be the economic development opportunity of a lifetime. Clearly, the economy of the market that wins the Amazon HQ2 sweepstakes will be affected, including introducing tremendous macro impacts to housing, jobs, retail, and infrastructure.
Kidder Mathews’ Rod Keefe, a downtown Seattle office leasing specialist with more than 27 years of CRE experience, says the emergence of Amazon has been an exciting journey since its founding in a garage through its first space in Sodo, and its eventual growth and shift into the downtown market. “Amazon has been fantastic for Seattle, for Puget Sound and the state of Washington,” said Keefe. “It has led to tremendous growth, and is part of why the area has attracted people who want to work for Amazon and other corporations.”
Keefe points out one of the benefits of HQ2 will be the 50,000 employees who will need space to work and will fuel economic benefits in that region. “But it goes beyond that since it will draw other companies to the area, further broadening and pushing the economic viability and growth. It becomes a terrific story,” he said.
Keefe has worked with clients and advised them how best to “follow along in the Amazon jet wash.” He predicts from experience, even for building owners not leasing space to Amazon or developers building its HQ2, there will be opportunities. “There will be inbound tech that seeks to be near Amazon and participate in the groundswell of activity,” said Keefe. There will be opportunities for neighboring property owners to the HQ2 site, who have raw land and can build out amenities and infrastructure. There will be a need for new retail, residential, and entertainment types of facilities too.
“Positioning a property to attract other players becomes a key strategy, and being in Amazon’s part of town where new restaurants or transit amenities are added, will make your company more attractive, too.” That was the case for companies like Blink, which expanded their headquarters in Seattle, and Weyerhaeuser’s move into downtown’s Pioneer Square was largely driven by a desire to attract Millennials who want to live close to work and not have a long commute.
Kidder Mathews’ Mickey Morera, a broker in Southern California, predicts it will be a “boom time” in whichever market Amazon selects for HQ2. “It is a golden opportunity to provide ancillary retail, office, housing, and amenities, like daycare services, in the area immediately surrounding the Amazon site, given the long hours employees typically work at the company. “It will likely take two to five years to construct the new headquarters, then the short-term ‘pop’ will be over,” said Morera.
Drawbacks and Considerations
Keefe points out that the recruiting and retention aspect also becomes a vital consideration to surviving in a fast-growing company’s wake. He says it becomes an exercise in “riding along with it, not getting knocked out of the way, but being a part of that growth.”
Jobs: Hiring could become challenging in the chosen city for HQ2 since Amazon plans to hire so many people. That could make it tougher for existing businesses to attract and retain talent. All those new Amazon jobs, paying an average of $100,000 at its new site, will create more competition for workers and wage increases in an already-tight labor market. Plus, the scale and type of workers involved are expected to more significantly impact regional employment markets than when Amazon opens a new fulfillment center in a region. The new HQ workers are expected to fill roles in the technology and supply-chain management areas. Those positions are exactly the kinds being created by other companies seeking to keep pace with Amazon in the e-commerce race. That could be a challenge for companies such as UPS or logistics-related occupiers who will need to compete for that same talent.
Housing: Amazon’s growth has led to some cautionary glances of a potential downside that would need to be addressed: where will all those new workers live? Amazon’s arrival could exacerbate a city’s already challenging housing market.
CoreLogic evaluated the housing economy in cities being considered for Amazon’s “second headquarters” location and found that more than half of potential cities have “overvalued” housing markets.
Amazon is a big factor in Seattle’s tight housing market, where the online giant’s headquarters employs about 40,000 people, and the company dominates downtown’s office market. Amazon occupies as much office space as the city’s other top 39 commercial renters combined (19% of all prime space), and its well-paid workforce is credited with helping boost residential rents faster than in almost any other city in the country.
Infrastructure: The growth of Amazon and other companies in Puget Sound have placed enormous pressures on the region’s infrastructure, which simply wasn’t designed to handle the new people moving into town. The shift to suburban communities for housing added to commute times, and created a need for new residential units, especially in downtown where Millennials want to live. That will change, notes Keefe, as that demographic gets older, begins to have children and seeks a more suburban living environment. In the Puget Sound, with its geography dominated by water and mountains, public transit will be stretched beyond current capacity. It is something Seattle wasn’t entirely prepared for either, notes Keefe.
Zoning: Having the proper zoning is key for a market to prepare for the arrival of Amazon. “Zoning is a key part, and we’re playing catchup now on zoning in Seattle,” said Keefe. “To see now the mindboggling growth, it would have been wise to get ahead of it as a community and city.”
Morera agrees, “if cities are going to be the beneficiary of getting Amazon, then the adjacent properties will need to work with city’s zoning laws. That may mean, for instance, changing them from industrial to housing, as well as addressing infrastructure concerns, such as expanded roadways to support growth.”
Keefe advises, “Once a city wins the Amazon bid, it must be thoughtful how it will work with the organization and other firms that will come to design a World Class community and environment for employees, visitors and existing residents, so all elements – from parks, entertainment, hotels, etc. – work together in harmony.”
While there was some disappointment around the Puget Sound that Amazon would look elsewhere to expand, there is a silver lining. First, Amazon’s main base will remain rooted in Seattle, so continued growth makes the company stronger. Second, trying to add 50,000 new employees in Seattle would have eventually created hiring problems. By diversifying the geographic base, Amazon should be able to continue attracting top talent who will be expected to produce new ideas, innovations, and top-secret products. Even if they are developed at new facilities, the progress only bodes well for the longevity of the company and the Puget Sound region.