Amazon Rumored to Have Chosen 2 Locations for HQ2
The e-commerce behemoth reportedly decided to split its $5 billion second-headquarters project between sites in New York City and Northern Virginia.
Amazon is scheduled to announce the location for its second headquarters, HQ2, by year’s end, but according to a Wall Street Journal article, there’s been a change of plans. Instead of selecting one of the 20 metropolitan areas on the shortlist for the $5 billion project, the e-commerce titan will reportedly select two: New York City and Northern Virginia.
Per the WSJ article, Amazon is planning to divide HQ2 between Long Island City, N.Y., in the Queens borough of New York City, and Crystal City, Va., a suburb of Washington, D.C. It will be an equal split with each area getting a facility half the size of the planned 8.1 million-square-foot headquarters and half the 50,000 jobs that will come with it.
“If it’s true [that there will be two HQ2 projects], then in the discussions going on between Amazon and both of these entity cities and states, the site is a huge issue. It’s about control and risk, lease versus own and even where they’re going to get the construction labor, whether they’re going to have union labor or not and prevailing wages,” Robert Hess, a vice chairman with commercial real estate services firm Newmark Knight Frank, told Commercial Property Executive. “That could have been one of the reasons why they did split it, because where can you even get that much construction labor in one place? So, there are some realities of what these people are talking about right now.”
Winners take half
The metropolitan areas that share the HQ2 project will experience big changes in their respective commercial real estate markets. The impact on the office sector will remain unclear until Amazon decides if it will build new facilities or set up shop in existing buildings or pursue a combination of both options. However, there will be some clear winners.
The multifamily sector in Queens and Crystal City would certainly benefit from HQ2. “While not all of the 25,000ish proposed employees will live in the exact submarket HQ2 is in, a large enough portion to boost absorption will,” Chris Muoio, senior quantitative strategist with commercial real estate marketplace Ten-X Commercial, told CPE. In the third quarter of 2018, the overall apartment occupancy rate was 96.2 percent in Crystal City and 96.1 percent across Northern Virginia, according to a report by NKF. With the market already so tight, further demand would prompt additional multifamily development.
The HQ2 jobs-induced boost to the apartment market would be even more welcomed in Queens. “This is particularly key for Long Island City, which is in the midst of a massive building boom that is currently slated to flood the market with supply,” Muoio said. “This helps assuage concerns over rising vacancies and falling rents by providing an exogenous demand surge to help meet this supply.”
In the retail sector of both metros, demand would go on the upswing, also due in no small part to the increase in local population resulting from the new Amazon positions. “Even if Amazon goes the Google route, and has an internal food and dining hall in its HQ2 locations, the retail sector should benefit from the halo effect from the uptick in economic activity in these markets,” added Muoio. “Incomes rising in the area and increased foot traffic from the new Amazon employees will drive increased demand for restaurants and bars, even if some of this is siphoned by internal dining options.”
Cart before the horse?
It’s all still speculation. While rumor has it that New York and Northern Virginia will each sponsor an HQ2 campus, Amazon has not yet confirmed any details. “Things happen in the last-minute stage, things can fall out,” Hess said, basing his assertion on the bevy of major headquarters projects he’s been involved with during his three-decade-long career. Other shortlisted metros like Dallas, he suggested, could leapfrog over the purported frontrunners.
“Dallas is great leverage for northeastern and mid-Atlantic states—those are higher cost environments and Dallas is a low-cost environment. Texas is a great business climate and there’s no personal income tax,” Hess noted. “So, all of those locations are keeping each other honest right up until the last minute when [Amazon CEO] Jeff Bezos shakes the hand of Governor X. It’s not over until the fat lady sings.”
Long Island City image courtesy of Julienne Schaer/NYC & Co.; Crystal City images courtesy of Crystal City Business Improvement District
