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HQ2: Where Amazon Goes, Other Companies Follow

Amazon’s Mere Presence in its Second Headquarters City Could Lead to an Entire Tech Eco-System
August 10, 2018
To measure Amazon’s impact on whatever city it selects for its second headquarters location, don't think buildings. Think people.

The draw of so many tech-savvy workers to one area can be an irresistible lure to other corporations that depend on such talent. At least 31 Fortune 500 companies now have some presence in Amazon’s home city of Seattle, up from seven in 2010, when the company moved its headquarters downtown.

In Seattle, Google is building a 600,000-square-foot, four-building campus across the street from Amazon’s headquarters. Facebook now has 1 million square feet of office space in Seattle, according to CoStar data, and Apple is gobbling up space in a downtown skyscraper nearly as fast as it comes on the market.

Expect a similar scenario to play out in HQ2, as companies will increasingly jockey for office space near Amazon. It’s all about luring top talent to areas the Brookings Institute calls "innovation districts," or tech-centric areas with anchor institutions that attract similar companies because of their proximity to top talent. Brookings cited Seattle’s South Lake Union neighborhood-- where Amazon maintains its headquarters -- as one of the country’s top such districts because of its mix of research institutions, technology companies and startups.

That "ripple effect" could transform Amazon’s HQ2 city as much as anything the company does directly, said Jon Scholes, chief executive and president of the Downtown Seattle Association.

Besides Google, Facebook and Apple, companies such as Twitter, Airbnb, Oracle and Best Buy are just a handful of businesses that opened satellite offices in Seattle largely because of Amazon.

"Any city that wants to be competitive needs to embrace what Amazon did for Seattle. They created a blueprint for economic development in the 21st century," said Scholes, who added that the company will "absolutely strengthen the tech eco-system" in whatever city it chooses to locate its second headquarters.

Amazon, the world’s biggest retailer, has said it would choose a region from among 20 finalists this year for its second headquarters in a project it estimates will generate 50,000 jobs and $5 billion in capital spending. The company has said its second headquarters will be a full equal of its Seattle footprint. It occupies 13.6 million square feet of office and industrial space in 45 buildings in the Seattle area, according to a report by San Francisco-based BuildZoom.

While the second headquarters is likely to have an outsized effect on smaller cities such as Columbus or Raleigh, NC, the report said Amazon could still have a "disproportional effect" on real estate markets in larger cities -- think New York or Chicago-- if it concentrates its offices in a small area, as it did in Seattle. The company both leases and owns its office buildings -- it occupies 20 percent of all office space in its South Lake Union neighborhood, according to CoStar data -- but will initially have to lease in its new city, reducing vacancies and driving up rents, BuildZoom said.

That’s exactly what happened in Seattle. At an average of $52.45 per square foot, commercial rents in Amazon’s South Lake Union neighborhood are the highest in the Puget Sound region, according to CoStar data. The influx of so many workers can strain the transportation system and send rent and housing prices skyrocketing. Kiplinger says the cost of living in Seattle is 49 percent above the U.S. average, and Case Shiller says housing prices rose 13 percent the past year.

Amazon may also spark a fierce war for tech talent and aggressively come after other companies’ star workers, said Ami Sarnowski, chief innovation officer at technology services firm Global 10. She estimates that Amazon will poach anywhere from 3 percent to 7 percent of top talent in its HQ2 city.

That can quickly escalate as more and more tech companies move to town.

Amazon hired 504 employees from Microsoft between 2001 and 2016, according to data from the career site Paysa, while Apple today is in the midst of a campaign in Seattle to recruit employees from Amazon and other tech companies. When Oracle opened its Seattle technology center it hired two former Amazon executives to run it.

Seattle has become a top destination for out-of-state tech workers to move, according to professional networking site LinkedIn, and Amazon’s HQ2 city should expect a similar influx of tech talent. Like in Seattle, that’s likely to drive development of high-end multifamily buildings near the company’s campus. Amazon says 20 percent of its workers live in the same ZIP code as their offices. The company’s request for proposal emphasized the need for housing near the proposed sites, which could create new opportunities for multifamily developers and investors.

While Amazon has been tight-lipped about the makeup of HQ2, it did say that the average wage of employees there would be more than $100,000 annually.

Suzanne Dale Estey, former CEO of the Economic Development Commission of Seattle & King County, urges Amazon’s HQ2 city to not underestimate a once-in-a-lifetime chance to plan for extreme growth.

"This is your opportunity to plan for a 10-, 20-, or 50-year horizon in infrastructure, affordability and civic fabric," Dale Estey said. "It will completely change that city forever."
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