As Amazon AMZN, +0.92% closes in on selecting the location for its second headquarters, experts say property speculators to tread carefully.
The company is reportedly in late-stage discussions with communities in Crystal City, Va., just outside Washington, D.C., and Long Island City, N.Y. to build its second headquarters, The Wall Street Journal reported Monday. The company’s current headquarters is in Seattle, Wash. (Some reports have said Dallas is also still in the running.)
Amazon has said that its second headquarters or HQ2 would bring more than 50,000 employees and create more than $5 billion in economic investments over 20 years, and potential HQ2 locations went to great lengths to woo Amazon. (Amazon declined to comment on this story.)
Marc Cenedella, chief executive officer of Ladders, a careers website, said New York City and Northern Virginia are two of the best places for talent. Amazon employees generally fall into two categories: Low-wage warehouse employees and high-wage “knowledge workers.” Jobs at these two HQ2s are expected to fall into the latter category.
“What they have built in Seattle has taken 20 years, and trying to duplicate that size and scale of technological workforce is going to be hard to do in one city,” he said. “Splitting it seems like a rational decision.”
Will these cities attract workers?
A PayScale analysis placed Northern Virginia and New York City as the second and third best locations for HQ2 in terms of concentration of skilled talent, surpassed only by Boston. Both the New York and Washington metropolitan areas already have burgeoning tech sectors, giving Amazon a pool of talent to hire from, said Aaron Terrazas, senior economist at Zillow Z, +1.46%
One analysis placed Northern Virginia and New York City as the second and third best locations for HQ2 for skilled talent, surpassed only by Boston.
Both are home to major corporations. Mars Inc., Capital One COF, +1.28% and Northrop Grumman NOC, +1.18% are among the many companies that call Northern Virginia home. JetBlue JBLU, +0.00% meanwhile, is headquartered in Long Island City.
They also abound in commercial real-estate vacancies. Long Island City, in particular, has undergone a revitalization in recent decades that has seen large warehouses on its waterfront redeveloped into corporate office parks.
Earlier this year, Citigroup C, -0.92% vacated One Court Square in Long Island City, the tallest skyscraper in New York City outside of Manhattan, opening up 1 million square feet of office space. Citing sources, Crain’s New York reported that Amazon is considering that building for its Long Island City outpost.
The move will likely attract hundreds of thousands of workers to the selected cities, including may people who do not work with Amazon, but work at ancillary businesses and startups that pop up around Amazon, said Katie Bardaro, vice president of data analytics at PayScale, a compensation data and software company.
Will house prices go up in HQ2 cities?
House prices and rents will likely rise, especially close to the new HQ2s, experts say, but it won’t be sudden and there may not be a significant spike that some homeowners in Long Island City and Crystal City are hoping for. “A sudden influx of highly-paid workers can be good but can also have negative effects on local economies,” Bardaro said. “People who want to live near their work location could price out those who already live there.”
The ‘Amazon effect’ on house prices could be tempered given that the HQ2 is reported to be split between the two developed metropolitan areas.
But the impact on housing prices might be less severe in New York and Washington, D.C., than it would have been elsewhere. One study from real-estate website Apartment List predicted that rents would increase by less than 0.5% in those two cities were they to win the bidding war for Amazon HQ2.
It’s all relative, of course. Home values in New York City have already soared 42.5% over the last five years, while prices in Arlington County, Va., have risen 15.5%. Home values in Seattle comparatively increased 73% over that timespan.
In New York, a recent spate of new luxury apartment complexes has caused the top-end of the city’s rental market to see prices soften due to the larger number of vacancies. Long Island City and Queens were outliers in that trend, however.
What’s more, the “Amazon effect” could be even more reduced given that the headquarters is reported to be split between the two cities.
What will happen to rents near Amazon?
Rents are already rising in the two metropolitan areas rumored to be Amazon’s choice. The Northwest region of Queens, which includes Long Island City, Astoria, Sunnyside and Woodside, has the highest average rent in the borough at $3,095 per month, according to data from real-estate firm Douglas Elliman. Rents there rose 3.8% over the last year, compared with 1.8% for Manhattan and 0.2% for Brooklyn.
The two locations under consideration are easily accessible by commuters. That makes it easier for HQ2 employees to consider living somewhere.
A similar situation has played out in the Washington metro area. Arlington is a desirable area and has experienced nearly 3% rent growth in the past year. The median rent there is $2,080 per month. Comparatively, the median rent has only risen 0.6% year-on-year in the Washington metropolitan area, below the national average of 1.1%, according to Apartment List.
The two locations under consideration are both easily accessible by commuters. That makes it easier for Amazon HQ2 employees to consider living somewhere. (Comparatively, Seattle’s lack of transportation infrastructure made living closer to Amazon’s current Southlake Union headquarters more of a priority and, therefore, more expensive, Terrazas said.)
Crystal City is serviced by the Blue and Yellow Lines of the Washington Metro and the Metroway bus rapid transit line. Long Island City is served by eight different subway lines that can take riders to Pennsylvania Station and Grand Central Station, two major hubs. The Queens neighborhood is further accessible by commuter rail and ferries. Both cities are also located near major highways.
“They’re just outside the city center,” Terrazas said. “That makes these places even more accessible to young urbanites and people who prefer to live in the suburbs.”
Seattle was slow to ease rules on infrastructure and housing construction, which drove up rents and house prices.
Another benefit these cities have is time. Amazon’s success took Seattle by surprise, Terrazas argues. As a result, the city was slow to ease rules regarding the construction of infrastructure and new housing. The tough competition for homes to buy or rent subsequently pushed home and rent prices to all-time highs.
Last week, New York City Mayor Bill de Blasio announced plans to invest $180 million in infrastructure improvements to Long Island City. “D.C. and New York, even if it’s only 25,000 new jobs, know this is coming,” Terrazas said. “They can plan for that and make sure the infrastructure is in place before employees come looking for a job.”
Are New York and Crystal City obvious choices?
While Amazon reportedly received more than 200 proposals from cities across the U.S. offering to host the new headquarters — any many threw in economic incentives to sweeten the deal — it’s likely the company only ever considered a handful of these, said Scott Galloway, CEO of New York City-based business intelligence firm Gartner L2.
“This was over before it started,” he said. Galloway believes Amazon shopped the headquarters around to strengthen its hand to bargain with a smaller number of preferred cities. Newark and New Jersey offered as much as $7 billion in tax incentives and other cities spent thousands on marketing campaigns. (Amazon did not return a request for comment on Galloway’s remarks.)
In fact, Galloway predicted Bezos would choose New York City or the Washington, D.C. area, as the billionaire owns homes in those locations. “When you’re the wealthiest man in the world, the only thing you can’t buy is immortality — you don’t want to live far from the headquarters,” Galloway said. “These new locations will be within a 15-minute bike ride from homes Bezos already owns.”
