Dean Barber

Amazon HQ2: An Avalanche of Glass, Steel, People and Money

In Corporate Site Selection and Economic Development on October 2, 2017 at 7:59 am

A plenitude of cities are vying to become the chosen one for Amazon’s future “HQ2,” a second, equal-footing headquarters that will employ 50,000 people at an initial investment cost of $5 billion.

Most people have little understanding about Amazon, much less its plans for HQ2. (“Amazon wins games by changing the way the games are played then being the only ones who understand the new rules,” wrote a former Amazon employee.) I include myself among the ignorant, which didn’t stop me from writing Even a Blind Hog: Handicapping Amazon HQ2. After all, I am a consultant.

But this much I do know – the city that is chosen will be reshaped and transformed for decades to come.

I actually regret writing my Blind Hog blog, not because I demonstrated that I was pretty much clueless like everyone else, (I did say from the outset that I was probably wrong.), but because of the responses that it generated.

Mind you, some were very good in that there was reasoning behind the thoughts. Others were bad because, well, you’ll see.

We Need It and Sis Boom Bah

The bad ones fell into two categories. The first was the “we need this,” almost a “we deserve this” response. It goes something like: “Hey, Amazon, if you have an ounce of humanity, you will choose us, because, well, we’re kinda hurting here, and we really need you. So please do the right thing and choose us.”

I actually came across this type of response back in August, when I wrote two blogs about where a $1.6 billion Toyota-Mazda assembly plant project. By this rationale, companies should abandon siting billions of dollars of capital for business reasons (talent, supply chain, cost of doing business, etc.), and look to places that are economically challenged.

Of course, it is not about what any community needs. Rather, it’s all about what the company wants or needs, which in the case of Amazon is considerable. Those needs are spelled out in their request for proposal (RFP), which does provide us with certain clues as to where the company might go.

Then there is the “cheerleader” response. It’s something like: “Hey, Amazon, we’re open for business, and we’re the best, because, well, we are. Choose us and you won’t be sorry. Rah, Rah, Rah, Sis Boom Bah!”

The cheerleaders may cite some supporting factoids (often they do not), but their responses exemplify little if any critical thinking on why their city would be a good fit for Amazon.

The truth is you can find flaws in every place, and that no city meets all of Amazon’s needs absolutely. And that is what makes this project so interesting, along with its transformative nature.

Best Be Careful

Since Amazon publicly published its RFP last month, there has been no shortage of people speculating on where it might go. And that is all they are doing, speculating. Count me among the guilty. I had to laugh when I read one big commercial real estate company’s ranking of top cities for the Amazon project, misspelling Pittsburgh in the process.

But Pittsburgh Mayor William Peduto did get it so very right when he said, “This is a transformational opportunity unlike any that we’ve ever seen.”

In my last blog, I quoted a remark frequently made by my grandfather, “Even a blind hog will find an acorn on occasion.” Mayor Peduto’s statement reminded me of another: “Best be careful what you wish for, because you may just get it.”

Whichever city “gets it,” it will get what The Seattle Times calls “an avalanche of glass, steel, people and money.” Like Seattle, the HQ2 city will become a company town. And while the benefits will exude to many, HQ2 may make life actually tougher for some. More on that in a moment.

Hit Me With Your Best Shot

I am purposely not reading the newspaper stories of Philadelphia’s bid, or that of Boston, Dallas, Indianapolis, or Denver, or any other of the umpteen cities vying for HQ2. At this point, it would serve little purpose.

Despite their shortcomings (all places have them), some cities have a real shot at winning HQ2, while others are crafting proposals only because they are succumbing to political pressure to do so. The thinking by local politicos is that they would look bad if they did not throw their hats in the ring.

Economic developers and elected officials can then say, “well, we gave it our best shot.” And then go back to business as usual.

One economic developer told me said he hopes he will not be pressured into crafting a proposal to the Amazon RFP. “It would cost me $50,000 to do this, and I don’t want to waste the time and money,” he said.

Trust me, he would be wasting time and money.

Update: My friend will be working on his city’s Amazon proposal for the next 17 days. (Deadline is Oct. 19.) I told him that I was very sorry.

In my Blind Hog blog, I picked Atlanta, although in hindsight Charlotte and Raleigh-Durham might be better choices. But it matters not what I say or anyone else says in speculation.

What ultimately matters is Amazon’s choice. Then over time, we can watch a city that will be forever changed. We only have to look to Seattle as a petri dish for what is to come.

A Juggernaut Dominance

Amazon has spent about $4 billion acquiring about 8.5 million square feet of downtown office space in Seattle, although some estimate the footprint closer to 10 million. The company expects to grow to 12 million square feet in the next five years.

According to an analysis conducted for The Seattle Times, Amazon occupies 20 percent of all prime office space in the city, more than twice as large as any other company in any other big U.S. city. (In most big cities, the top employer occupies less than 5 percent of local office space.)

About 70 percent of new downtown office space added in 2016 was exclusively for Amazon, which has turned formerly forlorn parts of the city, into vibrant live-work-and-play neighborhoods, according to The Times.

Amazon now occupies more office space than the next 40 biggest employers in Seattle combined. It has more local job openings than all of the other region’s major employers combined.

Rider Levett Bucknall, a firm that tracks construction cranes worldwide, said Seattle led the U.S. with 58 cranes at work. Los Angeles, which has six times Seattle’s area, ranked second with 36 cranes.

In short, expect the Amazon juggernaut dominance to happen in the city chosen for HQ2.

An Unaffordable Future?

In the process, the resulting tech boom (50,000 direct jobs averaging $100,000 and 53,000 indirect jobs) will not only alter the chosen city’s cultural fabric but will also increase the cost of living.

In a 2014 op-ed, Jeff Reifman wrote in GeekWire that an Amazon-fueled future is “will be more male, even more white, wealthier and less diverse, unaffordable to those with lower incomes including the firestarters of culture, artists.”

The influx of high-income earners, along with the lawyers and venture capitalists who will support them, will be a harbinger for growth and rising prices. Seattle’s record growth has made it the nation’s hottest homebuying market, with prices rising faster here than anywhere else in the country.

The median price of a single-family home or condo in Seattle was $522,000 in August, according to real estate company Redfin, a 67 percent spike from April 2010, when Amazon opened its headquarters.

Nested’s 2017 Rental Affordability Index ranked Seattle fifth in a nationwide survey of cities and ninth worldwide, with a cost per square foot of $3.07. Monthly rent for a single person, according to the survey, averages $1,288.76.

In a 2015 study, Redin found that for every 1 percent increase in the number of technology workers between 2014 and 2015, there was roughly a 0.5 percent increase in home prices.

Home prices have jumped 64 percent in Austin since 2009, Redfin’s data show. In Boston, prices are up 71 percent. And in San Francisco, the median price of a home is $1.25 million, a 123 percent increase since 2009.

Am I predicting future affordability problems in the HQ2 city that is chosen? I guess I am at that.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

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