Amazon is an internet giant. It was founded by Jeff Bezos in 1994, and went online in 1995. The company started out in Bezos garage selling books online. In two months, its revenues were at $20,000 a month. It went public in 1997 at $18.00 per share. By 2006, it had a market capitalization of $17.5 billion. At the start of 2017, it has grown to a capitalization of $355.9 billion, which was more than the combined capitalization of next eight largest retailers (online or otherwise).
The company is considered as the world’s largest company in terms of revenue, it ranks fourth in terms of value as a publicly traded company and is the eighth largest employer in the country. It employed 541,900 people by the third quarter of 2017, of which 159,500 were hired from June to September. It employed an additional 120,000 workers to fulfill the fourth quarter seasonal sales volume.
Amazon has its headquarters in Seattle, WA with more than 40,000 employees working in 33 buildings within the city. There are 24 restaurants, as well as eight other service establishments within the Amazon headquarters. For the headquarters alone, it has capital investments of more than $3.7 billion and $1.4 billion in operational expenses.
The indirect effects of Amazon to Seattle are significant. From 2010 to 2017, the number of Fortune 500 companies with engineering and research/development offices located in Seattle who deal directly with Amazon increased from seven to 31. There have been an estimated 53,000 additional new jobs in the city due to Amazon’s direct investments. Also, there have been additional investments worth $38 billion within Seattle from Amazon’s direct investments.
In the opinion of Amazon, it is time for them to house additional employees in a different city. In September of 2017, Amazon issued a request for proposal (RFP) to cities capable and willing to host Amazon’s second headquarters. Considering the growth of Seattle during the last seven years, the second headquarters would have massive effect on whichever city will be chosen.
Criteria for Judging
Amazon created a bidding war when it released its RFP. It detailed the requirements for Amazon’s second headquarters. In so doing, it also gave an insight on the impact it had on Seattle, Washington, as well as its expected impact on the HQ2 host city.
Amazon cites several core preferences in its RFP, including a location within 30 miles of a population center. It has to be within 45 minutes of an international airport. It has to be no more than one to two miles away from major arterial roads, as well as having on-site access to subway, metro and bus routes.
The proposed HQ2 will have an initial (Phase I) space requirement of at least 500,000 square feet. This is an immediate requirement and construction would start in 2019. By 2027, it is expected
to have up to eight million square feet of office space.
The estimated capital investment will start at $300,000,000 and reach $600,000,000. Phase II building will double the office space to two million square feet, and cost up to $1.26 billion. Phase II building will increase the office space to three million square feet, and the estimated capital investment is expected to reach close to $2 billion. Phase IV is expected to expand the existing office space in an organic manner. At the end of the 15-17 year project, HQ2 will have eight million square feet, and will have cost $5 billion to build.
For the labor force, HQ2 will have about 50,000 employees after the project has been completed. To fill up these job requirements, the buildings or campus must be located near a city with at least a million residents. It also must have a ready pool of highly educated individuals and skilled laborers with the corresponding educational attainment. This can be assured with a university system or systems within the city’s immediate environs. Housing the new employees will be a growing concern as HQ2 development progresses.
The cultural community fit was also emphasized, for the city to be in-synch with the employees’ and company’s culture. These factors include educational opportunities, recreational facilities as well as an overall high quality of life. Culturally diverse communities are at an advantage.
One of the reasons for Amazon’s bidding process was to be able to avail of tax incentives and lower cost of development, as well as ongoing cost of doing business. This has lead the search to cities which have existing programs for subsidies, grants, tax breaks and other incentives.
Top 20 Candidates
Amazon released the shortlist of 20 cities which are finalists in their search for a second headquarters. The shortlist included: Toronto, Ontario, Canada; Boston, MA; New York City, NY; Newark, NJ; Pittsburgh, PA; Philadelphia, PA; Montgomery County in Maryland; Washington, DC; Raleigh, NC; Northern Virginia, VA; Atlanta, GA; Miami, FL; Columbus, OH; Indianapolis, IN; Chicago, IL; Denver, CO; Nashville, TN; Los Angeles, CA; Dallas, TX; and Austin, TX. The proposals included some business perks and other come-ons for Amazon to consider. These include tax breaks, subsidies and other incentives.
These are the finalist cities, incentives, subsidies, and other advantages:
- Atlanta, Georgia. The city’s proposal was in cooperation with the Governor’s office, and would be upwards of $1 billion. It has a population of 5.6 million residents, with an unemployment rate of 4.2%, and a relatively low median household income of $59,183. Emory University and Georgia Institute of Technology are within its metropolitan area. Close to two-thirds of the population support giving incentives to Amazon as long as it brings in the jobs it promised.
- Austin, Texas. One of the largest acquisitions in recent years was when Amazon bought Whole Foods Market, the Austin-based reseller. However, the city did not offer any large incentive plan. The proponents have also been very secretive about their proposal. With a population of 1.9 million, and an unemployment rate of 2.6%, it would be necessary for Amazon to import new talent to fill up its employment needs. The University of Texas, Austin is located within city limits. To host Amazon HQ2, the city has to invest in additional infrastructure including roads and airports.
- Boston, Massachusetts. Boston is well-known as a university town, with Harvard University, Massachusetts Institute of Technology, Tufts University and Boston College. The state itself was the site of an IT boom during the 1970s and 1980s. It has a history of innovation which continues to today. It has a population of 4.7 million, with a 3% unemployment rate. The median home sale price is $573,300 and the median rent is $1,660. Unlike other proposals, Boston made its proposal public. Unlike some other proposals, Boston had few tax breaks.
- Chicago, Illinois. It has a population of 9.5 million and an unemployment rate of 4.7%. Its top colleges include University of Chicago and Northwestern University. It has a diverse population and rich cultural scene. Chicago presented a proposal which included 10 proposed sites. An important item on its bid is the possible location of HQ2 along the city’s South Side. This is the former location of the Michael Reese Hospital which was demolished in 2009. The redevelopment of the area is called the “Burnham Lakefront”. The mixed-use campus can have office space and high-rise towers, with housing over 144 acres of land, parks, public plazas and dedicated traffic lanes for self-driving vehicles. The campus can have office space of as much as 14 million square feet. In addition, the city is offering about $1.32 billion from personal income taxes collected from company workers annually. There is also a possible $400 million grant for infrastructure and capital spending around the HQ2 area
- Columbus, Ohio. Columbus has one of the smallest populations among the finalists, with only 1,995,004. It also has a 5.1% unemployment rate. The small population gives Columbus little chance of being chosen. It has a low median home sale price of $149,700 and a median rent of $740. The Ohio State University is located here. It proposed a 15-year 100% abatement on property taxes on all Amazon HQ2 sites. This is equivalent to savings of $456,750 for every $1 million in property investments. Additionally, there would be a 35% refund on income tax withholdings for new full-time employees. This would total up to $50 million annually, and up to $400 million in 15 years. Total savings for Amazon over 15 years could reach $2.3 billion.
- Dallas, Texas. The city has a population of close to seven million, with an unemployment rate of 3.2%. It also has a low median rent at only $880. Within its city limits is the Southern Methodist University. It is considered as one of the few cities which can accommodate an increase in population. The city is already in talks of developing a bullet-train which would cost $15 billion, and would take the 240-mile trip between Houston and Dallas in 90 minutes. The HQ2 campus would include a station for the high-speed rail. An alternative site in Dallas is that of the former Valley View Mall. This can be converted to a 500,000 square foot office building, as part of a 430 acre campus.
- Denver, Colorado. Denver has an emerging tech and innovation industry, which made it an early favorite. It has a population of 2.7 million, with an unemployment rate of 2.8%. The median home sale price is $393,700 and the median rent is #1,040. Incentives could come in the form of the: job growth tax credit; up to $1,200 job training grants per employee; income tax credits for Amazon to locate in distressed areas; tuition benefits for employees; and other local city incentives. The total incentives package would be worth more than $100 million.
- Indiana. The chances of Indianapolis winning the bid are so slim, that even Mayor Joe Hogsett said that it was a “long shot.” The city has a population of 1.9 million, and an unemployment rate of 3.1%. The median home list price is a low $140,990 and the median rent is a low $690. The cost of living, home prices and rent, as well as the cost of doing business makes Indianapolis an attractive alternative.
- Los Angeles, California. It has a population of 13 million, with a 3.8% unemployment rate. Its median home sale price is a high $675,500, and a media rent of $1,360. The University of Southern California, University of California Los Angeles, and Occidental College are within Los Angeles. Among all the cities on the West Coast, Los Angeles was the only one included in the short list. The California governor’s office will provide $300 million in tax breaks, if any city is chosen within the state. Another state bill introduced in November could raise the tax breaks to $1 billion over the next decade.
- Miami, Florida. Miami has a population of 5.9 million residents and an unemployment rate of 4.1%. The median home value is $306,000 and median rent is $1,070. Although Miami is the home of the University of Miami, there may not be enough employees to support such a massive project.
- Montgomery County, Maryland. The Maryland Governor’s office offered $5 billion in tax incentives if HQ2 is built in the state. It has a population of 6 million, with an unemployment rate of 3.6%. It has a high median household income of $93,804. It also has a high median rent of $2,070. There are two other cities close to Washington, DC in the short list.
- Nashville, Tenn. With a population of 1.8 million, Nashville is on the low side compared to the others on the list. It also has a 2.6% unemployment rate. The median home sale price is $239,600 and the median rent is $910. Vanderbilt University is within its boundaries. There are few details about the Nashville bid, although there is a hint that it may be not be as “absurd” or creative as other bids. Their bid may have a very slim chance of winning due to the small population and the problem with mass transit.
- Newark, New Jersey. Newark shares a greater metropolitan area with New York. It also has 4.8% unemployment rate. It is home to an Amazon company, Audible. It has the most to gain with the Amazon HQ2 due to having one third of the population under the poverty line. Newark is offering the biggest amount in tax breaks worth $7 billion over several years. The proposal involves the expansion of the existing Grow NJ program which provide incentives for companies with “transformative projects.” The Grow NJ expansion would provide $10,000 in subsidies for every job Amazon creates. It is close to New York, with several institutions of higher learning, but it does not share the high cost of land and property in New York.
- New York, New York. The New York metropolitan area has a population of 20 million, which it shares with Newark. It has an unemployment rate of 4.3%. The median home sale price is $836,100 and median rent is a high $2,070. Within the city can be found Columbia University, New York University, Barnard College, Cooper Union and Yeshiva University. The main selling point of the city is that it has a diverse talent, and it is the global capital for innovation, culture and commerce. Unlike Newark, New York did not offer any tax breaks or financial incentives. The size and diversity of the city fits with the Amazon culture, but the cost of living might cause it to be dropped from the running. It also has more than 26 million square feet of available office space.
- Northern Virginia, Va. Northern Virginia shares its metropolitan area with Washington, DC, has a population of 6 million. It has a high median household income of $93,804, and an unemployment rate of 3.6%. The media home value for Northern Virginia, specifically Arlington, is $649,700, and the median rent is $1,720. Nearby educational institutions include Georgetown University and George Washington University. Virginia decided to bid for the Northern Virginia region, instead of just Arlington. They wanted to leverage the other features of the region, like skiing, as a benefit for the bid.
- Philadelphia, Pennsylvania. The City of Brotherly Love has 6 million residents and an unemployment rate of 4.4%. The median rent is $960. University of Pennsylvania is located in Philadelphia. It has three ongoing development projects that total around 28 million square feet: Schuykill Yards, uCity Square and Navy Yard. These are already connected to other offices, retailers, transit lines and residential areas. The city is also offering office space in the iconic 30th Street Station. The state is offering more than $1 billion in tax breaks. In addition, the city is considering a possible tax exemption of more than $2 billion over the next 10 years.
- Pittsburgh, Pennsylvania. Pittsburgh has a population of 2.3 million and an unemployment rate of 4.3%. The median household income is relatively low at $54,020. The median home value is a low $130,400 and median rent is also a low $720. Carnegie Mellon University is located in Pittsburgh. There are no details as yet of the bid, however, the Pennsylvania Office of Open Records ordered that it should be released to the public within 30 days after Amazon released their short list. The main strength of the Pittsburgh is its affordable housing. It has enough available affordable housing units which can help to attract and keep much needed talent.
- Raleigh, North Carolina. Based on the Amazon criteria, Raleigh seems to be the leading candidate. In terms of incentives, it has the Job Development Investment Grant, which can result in reimbursements of up to 100% of withholding taxes for the new jobs created in the next 25 years. Up to $50 million can also be claimed for infrastructure including water, sewer and rail access. There is also the One North Carolina Fund which awards up to $5,000 per year per job up to five years. The city has a population of 1.2 million, just a little over the minimum set by Amazon. It has an unemployment rate of 3.9%. It is home to Duke University and the University of North Carolina, Chapel Hill. Raleigh just met the minimum population requirement, but it would be hard pressed to find an additional 50,000 residents who would be qualified to work for Amazon. The bulk of the new employees would have to come from elsewhere.
- Toronto, Ontario, Canada. Toronto is the only remaining Canadian finalist. It has a population of 6.2 million with an unemployment rate of 7.8%. The median rent is $1,205. The University of Toronto is located in the city. The city does not offer any tax break or incentives. However, it should be noted that the Toronto corporate tax rate is lower than the United States. Alphabet’s Sidewalk Labs, recently launched a redevelopment project to turn a portion of Toronto into a smart city. There is more than enough land in the Sidewalk Labs area to house Amazon’s office building needs.
- Washington D.C. The greater metropolitan area where Washington is located has a combined population of 6 million, with an unemployment rate of 3.6%. The median household income is a high $93,804. The median home sale price is $481,600 and the median rent is $1,310. Georgetown University and George Washington University are located nearby. The contents of the bid have been kept secret. The only thing not secret about the bid was the cost of making it, which was $140,000.
Amazon’s development of its second headquarters is unprecedented and it has caused some concern for those cities aspiring to win the bidding. Most of the concerns stem from the number of actual residents who would be ultimately employed by Amazon, instead of having an influx of people coming into the city.
Another concern is housing, specifically, the availability of housing for the new employees as well as the expected increase in cost brought about by higher housing demand. City leaders and planners are aware that their incentives and offers may be more than any future benefits, however, the possibility of developing their city with the help of a tech company acting as an anchor is irresistible. They hope that the progress that happened to Seattle in the last 7 years would also happen to their cities after they win the bid for Amazon HQ2.