Amazon Picks New York City, Northern Virginia For Split HQ2

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Via Bisnow

After more than a year of aggressive competition, bets and speculation, the arms race for Amazon’s second headquarters is reportedly over. New York City and Arlington, Virginia, will each get half of Amazon’s promised second headquarters.

The e-commerce behemoth selected the neighborhoods of Long Island City in Queens and Crystal City in Arlington, Virginia, the Wall Street Journal first reported. The Washington Post, owned by Amazon CEO Jeff Bezos, also reports the decision is final. The two locations sit across rivers from the centers of American financial and political power, respectively. The headquarters project, initially promised to house 50,000 tech employees and involve an estimated $5B investment as “a full equal” to its Seattle campus, will be half that. Amazon ultimately decided to mitigate the impacts its unprecedented economic development project would have.

In choosing the metropolitan areas of New York City and Washington, D.C., Amazon selected the two markets with more tech workers than any other city in the U.S., according to Cushman & Wakefield. If split evenly from Amazon’s original commitment, Amazon would occupy 4M SF in each area and invest over $2.5B over the next decade or more.

By the end of 2019, it would open 250K SF offices in each city, according to reports. Amazon has drawn widespread criticism for the public nature of its office search. Most corporate real estate searches are done quietly, negotiated in meetings with officials and only officially discussed once a deal is complete. “For the past year, one of the most common narratives about our economies has been a tightened labor market and how difficult it is for companies to hire skilled workers because of the record low unemployment rate, and that’s something I expect Amazon to talk about when they roll this decision out,” John Boyd Jr., principal at the site-selection firm The Boyd Co., told Bisnow. “They could say, ‘We’re a company that listens to the public, heard the outcry about what this company could do [to] the housing market, the local infrastructure, so we changed our approach.'”

Amazon’s public announcement in September 2017 and 14-month silence, save for a shortlist of 20 contending cities announced in January, pushed cities to compete for the chance to get the promised transformational project. The company told cities they should keep their negotiations private, and even on the eve of the announcement, the tax incentives New York and Virginia offered to Amazon were not made public. New York and Arlington are expected to hold announcement ceremonies Tuesday, according to the WSJ, and business and political leaders will seek answers on why Amazon, and ultimately Bezos, the world’s richest man, decided to put tens of thousands of jobs in the East Coast’s two gateway cities rather than the 236 other North American cities that applied.

The D.C. area, particularly Northern Virginia, had been pegged as a front-runner since Amazon narrowed the search down in January to 20 jurisdictions, three of which were in the Washington region. Crystal City was one of multiple Northern Virginia locations included in the bid, including Alexandria’s Eisenhower Avenue corridor and a joint Loudoun County/Fairfax bid.

A multitude of factors undoubtedly led Amazon to select Northern Virginia over the 200-plus other bids, but transportation and demographics were likely high on the list. Crystal City sits a short walk from a major airport and is connected to D.C.’s Metro system. It also boasts a highly educated population and a large concentration of skilled workers, many of whom are employed by the federal government and could see a significant pay raise by joining Amazon. Several nearby universities, such as Georgetown, George Washington, George Mason and Virginia and Maryland’s state flagship schools, give Amazon the opportunity to create a talent pipeline.  Crystal City also offers proximity to the federal government — it is less than 5 miles from the U.S. Capitol — as Amazon and other tech giants come under increased federal scrutiny. “These two locations also [offer] something unique: Long Island City offers easy access to Midtown Manhattan, and all the attractions that only Manhattan offers, whereas Crystal City offers close proximity to Capitol Hill for lobbying purposes,” Newmark Knight Frank National Managing Director of Research Sandy Paul said. “It’s close in, but not in, and that is appealing to Amazon.” Additionally, the neighborhood is a short drive from the world’s largest data center hub, where AWS — Amazon’s cloud computing division, its most profitable arm — maintains a significant footprint.  Crystal City is less than a mile from the Pentagon and Ronald Reagan Washington National Airport, but it is filled with 1970s-era office buildings with large vacancies.

The area has long been a hub for Department of Defense agencies and contractors, but government cost reduction and consolidation efforts have hurt the area’s office market, and it has suffered from elevated vacancy rates for several years. The influx of 25,000 jobs is projected to reduce Crystal City’s vacancy rate from 15.5% to 7.2%, according to a study from Transwestern and Sage Policy Group.   The landlord poised to benefit the most from Crystal City’s selection is JBG Smith. The public REIT was formed last year from the merger of The JBG Cos. and Vornado’s D.C.-area holdings, which included a large concentration of Crystal City office buildings. Prior to bidding for HQ2, JBG Smith had launched efforts to redevelop the neighborhood, signing anchor retail tenants and planning multifamily conversions.  With the unprecedented economic arms race now at a close, much remains to be decided.

For the 18 shortlist cities, experts believe Amazon could still locate smaller offices there in the future after having gathered uncommonly detailed information during the search. New York and Northern Virginia will have to figure out how to accommodate one of the largest private employment influxes in history, and what effect Amazon’s workforce will have on their future.

Photo courtesy of Bisnow