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Amazon HQ2 Top 20 announcement: The blueprint for the perfect global city
Ryan Bennett, Real Estate Securities Analyst at global asset manager, Schroders
Amazon recently announced its top 20 contenders, in terms of cities, in the bid to host “Amazon HQ2”, a second company headquarters in the US or Canada.
Amazon expects to invest over $5 billion in construction and grow this second headquarters to include as many as 50,000 high-paying jobs. Over the next 10 years, this could equate to over 8 million square feet of commercial space.
According to Ryan Bennett, Real Estate Securities Analyst at global asset manager, Schroders, the news created a stir across municipalities and states, eager for the opportunity to draw one of the most dynamic companies in the world to their city in the hopes of growth as robust as Seattle’s has been over recent years. “Specifically, Amazon estimates its investments in Seattle contributed $38 billion to the city’s economy between 2010 and 2016,” says Bennett.
As with its approach to many parts of its business, Bennett explains that Amazon opted for a more unconventional route for its real estate exercise, opening a formal Request for Proposal (“RFP”) process for cities to compete for HQ2. “And it seems as though every city, large and small, came out of the woodwork with the intention to bid for HQ2. The top 20 included favourites like New York, Los Angeles and Miami as well as some surprise announcements like Newark and Columbus, Ohio,” says Bennett.
What Amazon’s looking for
Talent / cultural fit. In its RFP, Amazon clearly states that “A highly educated labor pool is critical and a strong university system is required.” According to Bennett, no matter the other factors; this one, he believes, is likely the top priority. “The focus on universities is particularly pronounced, with the company requiring a list of universities and community colleges with relevant degrees and the number of students graduating with those degrees over the last three years,” Bennett says.
Infrastructure / transportation. “Amazon appears to be conscious of its employees’ commute, requiring transit and transportation options to be outlined,” points out Bennett. “As such, travel time to a major highway corridor and arterial roadway capacity potential are key factors. Amazon also requires ease of access to an international airport with daily direct flights to Seattle (its current HQ), New York (where it just expanded its Manhattan presence for advertising and fashion), San Francisco/Bay Area (outpost for Amazon web services, music and gaming) and Washington, D.C. (datacentre hub).”
Community/quality of Life. Like many tech companies, says Bennett, Amazon cares about maintaining an environment to keep employees content, this includes access to a vibrant city where employees can “enjoy living, recreational opportunities, educational opportunities, and an overall high quality of life.”
Sounds like a Global City
“Our Global Cities team has an index which ranks cities in order of their attractiveness from a real estate investment perspective,” points out Bennett.
“Funds such as the Schroder ISF Global Cities Real Estate fund have unique insights into this methodology. This allows investors global access to key commercial property markets in multiple countries – where it may be otherwise tricky to pinpoint where to invest or to buy property directly,” says Bennett.
“We believe Amazon’s requirements stated above point toward their ultimately choosing a city from our index. Especially after we updated our rankings earlier this year to include a new factor which identifies cities with top tier university systems,” says Bennett.
See image 1: Top 20 cities across the US and Canada ranked by Global
“It should be noted that the announcement of HQ2 RFP coincided with Seattle’s city council approval of a new income tax on high income earners. As such, Amazon notably stated in its RFP materials that new laws may be required to get the high level of incentives necessary to ultimately get HQ2. Big local and state incentive packages have been made to attract companies like Foxconn and GE. However, particularly in the case of GE’s move to Boston, incentives were a secondary concern. The company has said that the talent pool and access to quality university system was the primary reason for the move,” says Bennett.
Too many choices make the decision hard to predict
Bennett concludes that it is difficult to predict where the firm will go: “but certainly a city like Boston given its positive attributes and available land for a large campus give it an upper hand going into this race. Ultimately, we believe that the Amazon RFP is instructive as to what any employer looks for…the RFP might as well say ‘Global City Wanted.’”
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