After fourteen months of speculation the wait is finally over! Amazon announced two destinations for HQ2: the first in the Long Island City section of Queens in New York, the second in Crystal City, just outside of Washington D.C. Amazon’s initial announcement of an HQ2 location in September 2017 led to the narrowing down of twenty top cities earlier this year and last week’s headlines proclaiming it would select two cities. Concern about the impact of HQ2 on Seattle real estate may be partially responsible for increasing inventory and slower sales for much of 2018. Now that the news is out, Seattle can breathe a little easier – HQ2 is not likely to rival Seattle’s primary headquarters. Upon first glance, planned expansion of 4 million square feet in each East Coast city matches the 4 million square feet already planned for Seattle. The Seattle Times headline: “Will Amazon’s HQ2 Sink Seattle’s Housing Market?” is quickly answered “Probably not.” Realogics Sotheby’s International Realty was quick to point out the region’s market fundamentals may have been led by Amazon’s meteoric rise in recent years but greater job growth ahead could now be associated with other expanding tech companies in region such as Google and Facebook, not to mention rebooting hometown companies like Microsoft and Expedia.
A Tale of Two Cities
Amazon shocked the community in early November when rumors circulated that the e-commerce giant would select not one, but two HQ destinations. When news of HQ first broke in September 2017, Amazon promised the winner approximately 50,000 lucrative tech jobs and $5 billion in investment. The prospect of economic growth via Amazon had cities scrambling to be considered and when all was said and done, a total of 238 candidates threw their hats in the ring. Many were dismayed when they learned of the split and Amazon drew criticism from cities that said they’d have tailored their proposals differently had they been aware of a two-location scenario.
So, why split the spoils? According to The Wall Street Journal, talent recruitment was a key factor, as executives were worried they’d have trouble attracting top tech workers to only one location. The two-city approach also helps “ease potential issues with housing, transit and other areas where adding tens of thousands of workers could cause problems.”
Looking to Amazon’s selections, many are unphased by the Crystal City location, given that Bezos owns real estate in the area (in fact, Michael Rankin, co-owner of D.C.-based TTR Sotheby’s International Realty sold him a home) and he acquired the Washington Post in 2016. The Journal says the city was also a desirable locale for its easy access to Washington D.C., public transportation and the airport. “Adding to its appeal, it is also largely in the hands of a single developer” the Journal adds.
The Long Island City location is an interesting one when it comes to Amazon’s competitors, as Google recently announced massive office expansion in New York City. Originally an industrial neighborhood, Long Island City is growing rapidly and as the Journal notes, it too is easily accessible: nationally by airplane and locally “by multiple subway lines, the Long Island Rail Road and two ferry stops.”
When all is said and done, it can be said that Crystal City and Long Island City came out on top because of “access to mass transit, proximity to an airport with direct flights to and from Seattle and—perhaps most important—a pool of available tech talent nearby.”
What Does This Mean for Seattle?
Realogics Sotheby’s International Realty (RSIR) Owner and Chief Executive Officer Dean Jones has been closely following trends since the initial HQ2 announcement last year. He recently outlined implications on the Seattle market, pointing to a slowdown in sales that brokers were calling the Amazon Pause; would-be buyers—many Amazon employees—were waiting until the official announcement before making real estate purchases in the Seattle area. Meanwhile, sellers concerned about a slowdown tested the market with increased listings. Jones also cited Amazon’s fluctuating stock value as a factor, which serves as a significant wealth generator for many Seattle consumers. After soaring to $2,040 per share on September 4th, stocks fell to $1,530 on October 30th. Though recovering somewhat since then, Jones said a 25 percent correction in an investment portfolio would certainly curb enthusiasm for making a move for some.
“The issue of Amazon hiring fewer people into Seattle will be what us tech people call a ‘null op,'” says GeekWire Co-Founder Jonathan Sposato. “In other words, it will over time be a non-issue because our region will continue to birth new hiring engines regardless. The deal pipeline for startups getting capitalized has been so robust the last few years that another Amazon, Microsoft, Expedia, Zillow, Redfin or Tableau will emerge out of the last 10 years’ cohort.”
As Jones and others predicted, the two new headquarters are more additive to Amazon rather than competitive with Seattle. By splitting HQ into two campuses, Amazon appears to be expanding via satellite outposts versus building a bigger or better version of its current Emerald City headquarters.
“This effectively resolves fears that Seattle’s rising star may someday fade as less expensive markets draw jobs away,” Jones said. “I don’t find Long Island City or Crystal City to be particularly compelling for Seattleites or a bargain.”
The median home prices are pretty similar to here, and both New York and Virginia have a State Income Tax, while Washington does not. There are many other considerations as well, including comparative climate, lifestyle, culture, education and the sheer cost of relocating one’s family.
“Real estate in Seattle will continue being a fantastic investment. Few of us in the tech sector have any sour grapes about the situation at all,” Sposato notes. ” In fact, I raise a glass to toast Long Island City and Crystal City, while open to sharing our candid learnings from some of the challenges stemming from Amazon’s growth.”
“Our real estate advisors are uniquely qualified to explore the impacts of HQ2 in each neighborhood and can make direct referrals to affiliated brokers in New York and the D.C. area,” adds Jones. “Sotheby’s International Realty provides our clientele with exclusive advantages for Amazon relocations, both inbound and outbound.”
Despite the “watering down” effect that one might expect from two locations, the Wall Street Journal reports that in the week following just the rumor of a Long Island City HQ2, home buyer searches in the area surged. According to a report by StreetEasy.com, searches “for residential property in the neighborhood surged 295% from the same period a week earlier.”
Agents are calling the market “bedlam” with one broker saying he “sold 20 apartments via text” and heard from clients he hadn’t worked with in years—all wanting to get ahead of the inking of the Amazon deal and the “sure bet” that property values will rise when the tech giant officially comes to town.
So, what does this mean for Seattleites? Jones says that fundamentally, the Seattle metro area is primed for more housing demand given the entrenched tech boom, which was recently covered by RSIR in a blog post on “Trendlines vs. Headlines.” Since the feature was published in late October, it was announced that Facebook will lease two more commercial buildings at South Lake Union comprising 1.13 million square feet, as the tech titan also filed for building permits for another 650,000 square foot campus on Willows Road in Redmond.
Above: The “Trendlines vs. Headlines” post published recently by RSIR outlined a Google map of the Seattle metro area, which illustrates the location of existing and planned high-tech campuses and other large employers in the region along with primary transportation routes and subject communities.
RSIR also made the following observations that aggregate continued tech and economic expansion in the region:
Tech by the Numbers – Seattle
- Amazon now owns twice as much office space as it did in 2016 and will reportedly occupy 15 million square feet of office space throughout downtown Seattle with current commitments.
- Apple is expanding within Two Union Square with more than 70,000 square feet to office 500 employees (rumors persist that it is making offers on larger office space).
- Google continues to expand in South Lake Union (with five buildings either under construction or in planning), comprising nearly 1 million square feet of office space with occupancy expected by early 2019—the downtown Seattle campus could employ more than 4,500 people.
- Facebook has opened a new campus at 1101 Westlake, in addition to other leaseholds in South Lake Union, with current capacity for 3,000 employees. The social media giant recently applied for permits for Oculus expansion of more than 60,000 square feet of office space in the Home Plate Center near Safeco Field in SODO. It’s presumed the company leased all 124,000 square feet of the available space, but is merely building out the first half at this time with future plans to grow into the remaining space.
- F5 Networks has leased 516,000 square feet in a new office tower (now called F5 Tower) with an estimated 1,500 employees and room to expand. Excess office space is temporarily being sublet and attracting other employers.
- Expedia plans to relocate its Bellevue headquarters to Interbay (Seattle waterfront) in 2019 in what may eventually comprise of 1.9 million square feet of office space for approximately 8,000 employees (recent indications suggest the company will moderate its growth in measured phases). Many Bellevue-based employees will either relocate to Seattle or face an arduous commute.
- WeWork Northwest continues to expand in the Seattle region and is eyeing a total of 2 million square feet of office space in the greater Seattle area with new commitments in the World Trade Center North building and a 36-story tower being developed in Belltown (this tenant is critical for future growth in tech as many startups are incubating in co-working environments).
- Martin Selig Real Estate just announced commencement on two speculative office projects without any tenant preleases at 400 Westlake Avenue in South Lake Union and at 1015 Second Avenue – combined the projects will deliver 400,000 square feet of Class A office space by 2020.
Tech by the Numbers – Eastside
- Amazon occupies one office tower in Bellevue with 2,000 employees and plans for another with the potential of adding another 2,500 employees by 2020—that’s about 10-percent of the regional headcount.
- Vulcan Real Estate is planning 3 million square feet of office space—likely to target additional expansion of Amazon and other tech users. This developer is very close to tech growth and their commitment to Bellevue is a strong signal of additional tech expansion in the region.
- Tableau Software has preleased 180,000 square feet of Kirkland Urban for occupancy in 2019.
- Facebook will reportedly develop 650,000 square feet of office space in Redmond and along Willows Road for their Facebook Reality Labs/Oculus campus, according to public records.
- Microsoft is doubling down on its own campus rebirth with a multi-billion-dollar expansion that could office upwards of 8,000 employees. The direct connection to LINK light rail means Microsoft employees could choose to live in downtown Seattle or downtown Bellevue and enjoy reasonable commutes to Redmond.
- SRM is planning a 136,000 square foot building adjacent to Google’s Kirkland campus, likely for Google’s continued expansion.
- Rumors persist about expansion of Alibaba and other international tech companies seeking growth in the region (including potential leases at Southport on the Renton waterfront).
- While not tech-oriented, Costco Wholesale recently announced plans to expand its Issaquah headquarters by 1.2 million square feet with room for 4,000 employees. Again, eventual LINK light rail service to Issaquah affords employees the option of living in an urban market or commute by train to work.
Realogics Sotheby’s International Realty will continue to report on Amazon HQ2 as more details become available and trends are reported by brokers.