As Amazon AMZN, +0.49% closes in on selecting the location — now widely expected to be locations, plural — for its second headquarters, experts caution property speculators to tread carefully.
The company is reportedly in late-stage discussions with Crystal City, Va., just outside Washington, D.C., and Long Island City, N.Y., to construct secondary headquarters, the Wall Street Journal reported Monday. The company’s existing headquarters is in Seattle. (Some reports have posited that Dallas is still in the running.)
Amazon has said that its second headquarters, dubbed “HQ2,” would bring more than 50,000 employees reputedly set to be paid $100,000 a year and more 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 for 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.” HQ2 jobs are expected to be concentrated in 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 ranked Northern Virginia and New York 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, +0.50%
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, +1.03% and Northrop Grumman NOC, -0.89% are among the companies that call Northern Virginia home. JetBlue JBLU, +0.08% 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, -0.41% vacated One Court Square in Long Island City, the tallest skyscraper in New York City outside 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 many people who do not work with Amazon itself, 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 HQ2 locations, experts say, but it won’t be sudden, and there may not be the 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 the New York and Washington, D.C., areas 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. And that was before it was first reported the prize was to be split in half.
It’s all relative, of course. Home values in New York City have already soared 42.5% over the past five years, while prices in Arlington County, Va., have risen 15.5%. Home values in Seattle increased 73% over that time span.
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 more generally were outliers, however.
What’s more, the “Amazon effect” could be even more reduced given that the headquarters is now apparently set 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 past year, compared with 1.8% in Manhattan and 0.2% for Brooklyn.
This can be attributed to Manhattan prices pushing people into the surrounding boroughs and the migration of millennials to Brooklyn and Long Island City, which borders it, said Evan Metalios, a real estate broker with RE/MAX in Jackson Heights, N.Y. There has been an increase of 12,000 to 13,000 residential units in the Long Island City area in the past year, he said, but it likely won’t be enough to offset the huge influx of people from HQ2.
The two locations under consideration are easily accessible by commuters. That makes it easier for HQ2 employees to consider living somewhere.
“Because Long Island city once was a neighborhood of warehouses, it does not have the classic ‘New York feel’ of mom-and-pop shops and happening restaurants,” he said. “That said, the announcement of Amazon HQ2 is anticipated to rapidly change that. Creation of new high-paying tech jobs in the area is going to drive up prices even further and with this, a new wave of gentrification will come.”
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 believed to be set for selection by Amazon are both easily accessible by commuters. That makes it easier for Amazon HQ2 employees to consider living within commuting distance rather than necessarily in close proximity to the workplace. (Seattle’s comparative scarcity 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 Penn Station and Grand Central, two major hubs. The Queens neighborhood is further accessible by commuter rail and ferries. Both locales are also near major highways.
Seattle was slow to ease rules on infrastructure and housing construction, which drove up rents and house prices.
“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.”
Another benefit these cities have is time. Amazon’s success took Seattle by surprise, Terrazas recalled. As a result, the city was slow to ease rules regarding the construction of infrastructure and new housing. Competition for homes to buy or rent subsequently pushed purchase and rental housing 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 these 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 significant economic incentives to sweeten the deal — it’s likely the company only ever seriously considered a handful, said Scott Galloway, founder of New York City–based business intelligence firm Gartner L2.
“This was over before it started,” he said. Galloway speculated that Amazon shopped the headquarters around to strengthen its bargaining hand with a smaller number of preferred cities. Newark, N.J., and the state government in Trenton 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 had predicted Jeff Bezos and company would choose New York City or the Washington, D.C., area, as the billionaire Amazon founder 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.” (Bezos also owns The Washington Post.)