Amazon’s HQ2 shortlist: the cities going the extra mile

The hunt for a global business headquarters used to be a fairly straightforward affair. Then Amazon’s HQ2 requirement came along. The search has been a roller-coaster. A cross between TV’s Big Brother and a fiendish, real-time geeky experiment, the tech giant’s hunt for the perfect city to call home for its second HQ has gripped the USA for a year or more. And it’s not over yet. A long-list of 238 US cities – mostly self-selected hopefuls with little realistic prospect of making the cut – was assembled in October 2017. In January 2018, all but 20 of the candidate cities were ejected from the race. Ever since, observers have been wondering what swung it for the lucky shortlisters – and which of them will eventually claim the requirement. There’s certainly a lot at stake. The winner will get a campus to rival Amazon’s existing 8.1m sq ft downtown Seattle HQ. The invitation to bid suggests Amazon will hire as many as 50,000 new staff for its HQ2, and that they will be paid an average of $100,000 each. The firm has hinted this means an initial requirement of 500,000 sq ft, rising to 8m sq ft by 2027, and a $5bn annual economic boost to the lucky host city. Tea-leaf reading suggests Washington DC is the front-runner, with suburban Maryland in the Washington DC area, suburban Virginia in the DC area, and DC itself ranked just a shade below Atlanta in many commentators’ lists. New York-based property analytics business Reis developed a scoring system based on what Amazon said it wanted (see panel), and this pointed in the same direction. But with Amazon boss Jeff Bezos owning the Washington Post newspaper, Reis economists Barbara Byrne Denham and Victor Canalog, noted: “The location decision could come down to factors not listed in this analysis. “These measures include the tax incentives granted by the city/state, the ‘creativeness’ of the location, other immeasurable qualitative features or an underlying preference on the part of the decision makers for such things as access to skiing, a lake, river or ocean. “Or the decision could be based on whether or not the decision maker owns a newspaper in the city.” In other words, the location of a $2bn capital investment could come down to who likes what kind of sport – which is not very encouraging for those who like to think tech businesses make hyper-rational decisions. Michael Kitson, senior lecturer at Cambridge University’s Judge Business School, says this kind of indefinable “buzz” is often part of technology HQ decision making. “High-tech companies have to consider a range of factors,” he says. “Access to skilled labour is crucial – and in many cases this means access to highly skilled scientists and technologists. “Offering generous remuneration is one part of the package, but increasingly employees want to work in an interesting place with a ‘buzz’. This means not just good housing but local access to cultural facilities, open spaces and, for families, good schools.” Does that mean that tech HQ decisions are bordering on the non-rational? Kitson says no – not quite. “I think that tech companies are no less rational than any other companies. “They may just have to consider more factors – often difficult to measure – such as ‘buzz’ and collaborations with others. If it makes sense for Jeff Bezos to locate Amazon in Washington, that is rational for him.” In the generous geography of the Pacific coast, Portland, Oregon, is not far from Amazon’s Seattle base. From his office in Portland, Bert Sperling, vice-president at location finder Sperling BestPlaces, has been watching Amazon closely for signs of big-tech’s current HQ needs. One of them is size: the Amazon requirement will mean around 150,000 to 175,000 new residents for the host city. Only big, prosperous and well-organised locations will be able to cope with that level of migration, says Sperling. “There is plenty of talk that Amazon is seeking the most beneficial package of tax benefits, credits and other incentives, but we don’t believe that this will be a key determining factor,” he says. “Lavish enticements are nice, but nothing is more important than finding that special spot that will help Amazon grow and thrive for the foreseeable future.” Sperling’s tip is to keep your eyes on the west of the Washington DC metro area. “Land is plentiful, and it is close to the major Dulles International Airport – and the nightmarish DC commute is sidestepped by staying away from the city centre,” he says. Savills’ New York-based chief economist, Heidi Learner, agrees that the fundamentals of location choice don’t change much – whether it’s Amazon, or your local digital start-up. “Tech companies want access to talent, and the ability to retain their talent. Being able to build a critical mass of workers is just as important as the ability to keep those workers, which is a function of worker satisfaction and fulfilment at home and at work,” she says. Even big-picture politics doesn’t make much difference, she adds. “Brexit and the impact on tech companies is much less important than it would be for companies in the financial sector, for example, given passporting regulations. “That being said, any changes in immigration policy have the potential to make building a skilled workforce that much more challenging.” It seems that the more traditional location criteria – commuting times and land prices – matter as much to tech HQ searchers as to anybody else. What Amazon said it wanted The HQ2 requirement will go to a metropolitan area with a population of 1m or more. Amazon wanted a prepared site of 100 acres, and a host that could think creatively. It didn’t much care whether it was downtown or out-of-town, greenfield or brownfield. Amazon also insisted HQ2 should be 45 minutes from an international airport, just one or two miles from a major highway, and it wanted mass transit on site. The bid document said that “cultural fit” was important, explaining that this included “the presence and support of a diverse population, excellent institutions of higher education, local government structure” and elected officials “eager and willing” to work with Amazon. The company also wanted “an overall high quality of life” but didn’t say what it expected that to mean – although it did ask for information about the diversity of the local housing market, crime statistics and cost of living data. Amazon estimated the first phase of up to 1m sq ft would mean capital expenditure of $600m, and that the entire project amounted to just short of $2bn in capital spending. What tech companies want 1. The US Midwest Indianapolis and Columbus, Ohio, found their way on to Amazon’s top 20 shortlist, surprising some observers who hadn’t ranked them as real tech targets. But according to Bert Sperling at location finders Sperling BestPlaces, it shouldn’t have shocked anyone. “Places like Columbus and Indianapolis are receiving attention because of their affordability (both commercially and for employees) and a steady stream of new graduates from large, well-regarded universities,” he says. “Current technology hubs such as San Francisco, New York, Los Angeles, Seattle, and Boston are straining to provide commercial space and housing for the growing tech industry, and are looking for affordable locations for new offices.” Time-zone differences and rising costs are forcing US businesses to reshore from overseas centres such as Bangalore and Hyderabad. “Locating these new tech resources in the Midwest and other affordable parts of the US allows these consulting groups to provide reasonably priced services while still offering well-paying jobs to their employees,” Sperling says. “It’s no exaggeration that a small two-bedroom bungalow priced at $1.5m in San Jose may be found in Columbus or Indianapolis for well under $100,000.” 2. Dublin Dublin has Goldilocks appeal (not too big, not too small) of a kind that many tech giants love. It also has a youthful and well-educated demographic, and won’t be leaving the EU any time soon. Dublin is ranked ninth in the World Economic Forum’s Global Talent Competitiveness Index (London is 14th). The Silicon Docks of central Dublin remain the top tech location, with Google adding a third building to the two already claimed at Bolands Quay: a total of 257,000 sq ft. However, Facebook is believed to be scouting out 450,000 sq ft at AIB’s campus headquarters in Ballsbridge. If confirmed, this would be the first substantial tech move to the city’s southern business districts. 3. Manchester Like its US parent, Amazon UK has its own HQ2 requirement. The online giant is considering creating a 900,000 sq ft campus-style office hub in Manchester’s Northern Quarter – if the deal comes off as expected, it will signal the moment when Manchester moves from tech contender to serious tech player. Hermes’ NOMA development is regarded as the likely winner of the campus, although the Ask/Patrizia First Street scheme to the south-west of the city centre is also in the running for Amazon’s initial 90,000 sq ft toe-in-the-water. Like the Midwest cities of the US, Manchester has large, well-respect universities and a deep pool of young graduates. Will Brexit choke off a Manchester tech renaissance? Cambridge University economist Michael Kitson says it might. “Despite globalisation, location is important as close proximity to universities and other high-tech businesses can encourage collaboration and innovation. If the UK is not in the single market, many firms may consider relocating or moving some activity to the EU to maintain ease of access to the European market,” he warns. 4. Berlin Berlin’s cool reputation – combined with its EU status – makes it a formidable rival to London, as a slew of new arrivals testify. Already this year Bosch has chosen Berlin as the HQ for its new internet-of-things operation. At around 120,000 sq ft it isn’t huge – but it is a huge sign of things to come. Meanwhile, Samsung Next has chosen Berlin over London, claiming the UK capital is “not a fun place to live unless you are really rich”. David Thame Click here to read all of EG’s global content.