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http://www.marketwatch.com/story/amazons-second-headquarters-could-be-curative-or-curse-for-winning-citys-real-estate-market-2017-10-19
Amazon’s second headquarters could be curative or curse for winning city’s
real-estate market
As the dozens of cities lustily bidding for Amazon’s second headquarters
parade their smart citizens, housing capacity, transportation connections
and tax breaks this week to lure Jeff Bezos’s empire, the sometimes painful
housing-market lessons of Seattle — the e-commerce giant’s home base —
has become a factor of its own in this race.
The housing market must be a major consideration as metro areas march
forward in their pursuit and Amazon makes its pick, say real-estate experts,
especially as it relates to Amazon’s AMZN, -1.04% impact on job creation
and the local economy, its probable boost to demand for diverse housing
types for young and experienced workers alike, and the tension between
homeowners sitting on higher home values versus the buyers and renters
pushed entirely out of the market.
There’s little doubt that securing the bid for the second Amazon complex,
which the company pledges will bring a $5 billion investment and 50,000 jobs
, would be a “major win” for the lucky city, said Lawrence Yun, chief
economist with the National Association of Realtors. But there will be
housing-sector winners and losers as a result, he said.
Proposals to Amazon are due Thursday, and the pomp coming with some of the
highest-profile packages has included Manhattan’s alighting the Empire
State Building in Amazon orange, and other aggressive tacks, including New
Jersey’s reported pledge for a massive $7 billion in tax incentives to
bring “HQ2” to Newark. Chicago Mayor Rahm Emanuel and Illinois Gov. Bruce
Rauner, not always so chummy, huddled to form a no-fewer-than-600-person
committee to support their bid, the Chicago Tribune reported.
Analysis: MarketWatch screens reveal cities that meet the stated criteria
for Amazon’s second headquarters
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Real-estate economists are crunching the good and bad (note: there’s more
in the “good” column) that could come with scoring this high-profile
expansion of an Amazon whose arguably creative destruction of retail
continues to change the commercial and residential fabric of most of the
cities doing the wooing.
Read: Amazon, Apple, Google and Facebook will all go away within 50 years,
says author
The housing-market change in the Seattle area, which places six companies
among the Fortune 500, including Microsoft MSFT, +0.39% in the suburbs, has
been notable. In the seven years since Amazon concentrated its headquarters
in that city’s South Union neighborhood, home prices in the city have
surged by 83% and rents by 47%, according to online real-estate marketplace
Zillow, also based in Seattle.
In general, tech-job-driven upward pressure on wages has yanked real-estate
prices along the same path. Earlier this year, in one of Seattle’s hottest
neighborhoods, homes went for a median price of more than $1 million. It was
the first time on record that had happened in the city or its surrounding
suburbs, according to the Seattle Times. Seattle’s median home price is $
700,000, double Chicago’s median of $306,750, for instance.
Who will work at the new Amazon location, and where will they live?
Keep in mind that if the online retailing colossus brings 50,000 high-paying
jobs to the winning city, it won’t necessarily generate 50,000 home sales
or apartment leases right away, as some portion of the jobs presumably would
go to people who are already in place.
But “homeowners [looking to cash in on an increase in demand] need to
position themselves and their homes to take advantage, as there will be a
boost in values,” said NAR’s Yun. “People who will feel left out will be
those forced out by higher rents, and pushed out further into outer suburbs,
the one negative side-effect of major high-paying jobs coming in.”
Real-estate experts often point to the long commutes faced by employees in
Silicon Valley and in the San Francisco Bay Area more broadly. But Yun said
the tech revolution for cities is largely a boon for real estate. He pointed
to Portland, Ore., and its “high unemployment rate just 10 years ago, with
an economy still very reliant on lumber,” contrasting that situation with
the Portland that exists today: “Its economic diversification leaves it a
vibrant city with vibrant restaurants and a lifestyle that’s a point of
pride.“
If Amazon takes a similar approach to its Seattle pick, it may opt for an
HQ2 location that gives its office and the home choices of its workers a
decidedly urban or downtown-fringe feel, said Ralph McLaughlin, chief
economist with real-estate site Trulia.
Its future workers, especially millennials, might desire ample inventory of
condo developments and town houses, perhaps even over urban high-rises and
over far-flung suburban options, when it comes to housing choices, he said.
Other real-estate experts have said that an urban choice with suburban
housing options will be optimal in terms of lessening housing stress on the
area. For instance, Baltimore and Pittsburgh have suburbs that aren’t as
developed as New York’s or Boston’s.
Housing-market price pressure for the Amazon winner will be impacted by how
flexible zoning and planning policy is, so that construction, or even
adaptive reuse, can keep up with new demand, real-estate experts said.
A large driver of surging housing prices in Seattle can be linked to its
slow policy response. “The city is backed up on permits,” said Matt Goyer,
a real-estate broker and founder of Urbnlivn, a Seattle real-estate blog.
“Developers are eager to go but end up delayed for months because of delays
in the city government.”
In all, researchers at Apartment List, which studied 15 metro areas
contending for Amazon’s second headquarters, have predicted the Amazon
effect alone will add an average of 2% to rental costs on top of any
projected non-Amazon-related increase.
Commercial real estate will no doubt be impacted, as well. With total Amazon
spending on real estate reaching nearly $4 billion, the company now
occupies 8.1 million square feet of office space spread across 33 buildings
in Seattle, according to Seattle Times research, the largest footprint by
both raw area and percentage of any single company in any single city. In
the last three years, Amazon had gone from occupying 9% of the city’s prime
office space to 19%.
And therein lies another lesson: With industry concentration, such as that
taking form in Seattle, comes risk. According to the most recent office-
market snapshot from Green Street Advisors, a real-estate analytics firm,
there’s longer-term risk in Seattle’s dependence on a handful of tech
clients, although in the nearer term demand is forecast to remain robust,
fueled by strong income growth and the desire for high-end office space,
Curbed reported.
It’s also true that with Amazon will come presumed expansion of the service
industries that support Amazon’s business. Chicago officials, for one,
have said they believe that each dollar Amazon invests in construction and
operations would generate an additional $2.72 for the area economy, based on
an analysis by World Business Chicago, the city’s economic-development
unit. Other cities have forecast similar multiplier effects.
Handicapping the contenders
Other big cities reportedly in the hunt include Atlanta, Philadelphia,
Denver and Washington, while dozens more smaller metro areas want to be
considered, too. Amazon, which bought Austin-based Whole Foods Market Inc.
for over $13 billion this year before announcing its HQ expansion beyond
Seattle, said in its release detailing the search criteria that it will only
consider metro areas with a population of at least 1 million people and an
international airport offering at least some nonstop flights to Seattle.
NAR’s Yun said he sees pretty good odds for North Carolina’s so-called
Research Triangle, comprising Raleigh and surrounding university cities. He
also thinks the excess building capacity of trendy Nashville, Tenn.,
positions it well, he said. Amazon may also opt for the D.C. suburbs of
northern Virginia or the outer-ring suburbs of Boston to take advantage of
university resources of the nearby cities while embracing the ability to
stretch out and create a campus-style headquarters.
Anderson Economic Group, an East Lansing, Mich.–based consultancy that has
worked with automobile manufacturers and companies in other industries, said
that big, “old-meets-new economy” cities can’t be ruled out. In a recent
report, it ranked the most likely candidates in this order: New York,
Chicago, Los Angeles, Boston, Atlanta, Washington and Philadelphia, giving
higher weighting to the depth of local labor pools, including in the
secondary services industries that will support Amazon: legal, financial,
engineering and advertising.
These cities could lose points on a cost-of-doing-business basis. However, a
downtown Chicago address has proven attractive for recent moves by
corporate giants such as Conagra CAG, -1.00% , ADM ADM, +0.00% and
Caterpillar CAT, +0.20% , that have or will soon abandon their longtime,
small-town homes. McDonald’s MCD, +0.44% is even quitting the Chicago
suburbs for the city, as United Airlines had done previously. Chicago,
additionally, prevailed over Dallas, Denver and others in the nationwide
competition for Boeing’s headquarters when the aerospace behemoth opted to
decamp from Seattle in 2001.
Trulia’s McLaughlin thinks transportation will be a huge determinant, he
said, with strong transportation plus tax incentives an almost unbeatable
duo. That bodes well for Chicago and the major East Coast cities, including
the New York area, Boston and Washington.
Some observers give pretty good odds to Denver, believing its civic culture
is a good complement to Seattle’s home base. But McLaughlin questioned its
already surging cost of labor and its weakness as a transportation hub,
especially as Amazon looks to expand its global markets. That bumps up in
significance the offerings of Midwest or East Coast locales, where declining
populations could actually be leveraged into an attractive package for
Amazon: Housing costs are lower and politicians have an incentive to sweeten
any deal with tax breaks for Amazon as they look to stem population outflow.
Amazon’s pitch and the local political pitch to taxpayers center on the
fact that Amazon’s market share “could mean decades of guaranteed
employment for an area,” said McLaughlin. That’s especially enticing for
areas in the Northeast corridor or the Rust Belt that are losing population,
he said.
How can Amazon help maintain a housing mix?
But some urban-policy and housing experts think tech giants can be more
villain than savior, even for struggling communities.
Richard Florida, editor at large of the Atlantic’s CityLab, wrote in a
commentary that the future of tech-driven housing diversity in U.S. cities
rests in large part on a willingness of businesses to be good neighbors.
Tech outfits should invest alongside local governments and nonprofits to
provide subsidized affordable housing for local residents, as well as
workforce housing for their own service workers who otherwise endure long
and arduous commutes, Florida said. And they might consider giving up the
private shuttle services meant to ease the burden of those commutes and
instead invest in better public transit for all.
As the five most highly valued companies in the world, Apple AAPL, -2.37% ,
Google parent Alphabet GOOGL, -1.08% , Microsoft, Amazon and Facebook FB,
-0.84% , all based in the greater Bay Area or metropolitan Seattle, along
with many of their peers, boast the resources and capabilities to help
address America’s deepening urban divides and move toward inclusive
prosperity, Florida wrote, adding that “it’s also in their interest to do
so.” |
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