Amazon's Real Winners
Finalists in the HQ2 decision have transformed and elevated their economic profiles.
After an 18-month search, The Wall Street Journal reported in November that Amazon chose not one but two cities for its HQ2 operations - Northern Virginia's Crystal City and New York's Long Island City. While this unusual move may surprise many, CCIM Institute Chief Economist K.C. Conway, CRE, MAI, is not among them. Conway remarked to The Columbus Dispatch back in September 2018 that “it would make more sense for Amazon to split the operations of an HQ2 among several cities” - even naming Crystal City specifically.
CIRE sat down with Conway, who is director of research and corporate engagement at the University of Alabama's Center for Real Estate at the Culverhouse College of Commerce, to hear more about lessons learned from Amazon's site-selection process and the potential long-term effects on the industry.
CIRE: What was your initial reaction when you heard the news?
Conway: After a lengthy and high-profile site-selection process, Amazon finally made a decision - or shall we say a split decision - and it's one that doesn't exactly square with its RFP [request for proposals]. I think if Amazon learned anything from its HQ2 search, it was that Amazon is too big for any one city.
CIRE: Any surprises among the winners?
Conway: While Northern Virginia is no surprise as it's been a Top 5 MSA [metropolitan statistical area] contender from the get-go, New York certainly is. Both get high marks for public transportation and proximity to great universities producing STEM workforce, and both fail on housing affordability. Moreover, New York City has the largest skills gap in its workforce in the entire country, according to the latest LinkedIn Workforce report. These are two areas specifically detailed in the RFP - workforce and affordability. That's why the real story isn't so much about the two HQ2 cities, but the true winners of this process - the other 18 finalist cities that competed.
CIRE: What should the other finalist cities expect?
Conway: The bottom line is, there simply isn't enough workforce in Northern Virginia and New York to meet Amazon's demand. The Amazon effect in the winning cities will include poaching of existing workforce and driving up wages and home prices beyond the reach of both employers and employees. I think we'll see existing companies in those cities moving out of those markets … and into any of the other pre-vetted finalist cities.
By participating in this process, the 18 cities - or any of the other 238 metro areas that threw their hats in the ring - have transformed and elevated their economic profiles. All these areas now are prime locations for companies looking to relocate logistics, manufacturing, e-commerce, and the like. It's not a coincidence that Atlanta [one of the finalists] just won Norfolk Southern's HQ move. Or that Pittsburgh transformed itself from an old industrial city to a highly respected tech city and recently moved Google from Florida. Or that Columbus, Ohio, is arguably the epicenter of logistics - tied with Memphis, Tenn., and Chicago.
It's also not a coincidence that CNBC reported that Citibank was relocating 1,100 of its employees from Long Island City to “other locations in the first half of next year 'to make room for Amazon.' ” There will be many stories like these for years to come.
CIRE: What other impact has the HQ2 decision had on the industry?
Conway: Amazon turned site selection on its head in many ways, the effects of which we'll see over the next decade. For one, I think New York City and Northern Virginia have, in effect, taken themselves out of the running for site selection in the foreseeable future. Why would a company want to compete in these markets with 256 other more suitable alternatives ready and waiting for them? Cities like Raleigh, N.C.; Columbus; Pittsburgh; Nashville, Tenn.; Atlanta; Birmingham, Ala.; San Antonio; Phoenix; Orlando, Fla.; and Tampa, Fla., (I could go on) offer both STEM workforce and housing affordability.
Want to know more about these cities? No problem. All the site-selection information is being made available through the Open Records Act as we speak. It's data heaven for commercial real estate professionals, data arguably as valuable as the Census. If I were a CCIM, I'd be poring over the packages and pitches of the cities in my market to have that information at the ready for my clients. Combine that with the new opportunity zone program, and you have some powerful site-selection and economic development solutions to drive business for quite some time.
While many have already congratulated NYC and Northern Virginia on their wins, I'd like to raise a glass to the other competing cities - here's to the continued boom in your economic health. Thank you, Amazon!
For CCIM Institute's full report on the initial Amazon HQ2 bid, read the 1Q18 Commercial Real Estate Insights report, "Amazon HQ2: A Reset Button for Site Selection."