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September 8, 2017
Seattle was shocked by Amazon's surprise announcement on Thursday it wants to build a second national headquarters outside the Northwest, where it was founded 23 years ago and has grown into one of the world's largest and most far-reaching enterprises.
Or maybe the news isn't so shocking, according to Windermere Real Estate chief economist Matthew Gardner. “There's only so much land here. We have too much water, too many mountains.”
He asks rhetorically, “Do we have space for another 12 million square feet?” Not in South Lake Union, where he says Vulcan Real Estate can only build “another five million square feet or so.”
Reaction from the city came in the form of a generally upbeat statement from Mayor Ed Murray. He said, “My office will immediately begin conversations with Amazon around their needs with today's announcement and the company's long-term plans for Seattle. And we will coordinate with Governor Inslee to convene key business and community leaders to plan for our future growth and response to this announcement. I look forward to working with Amazon to secure their long-term, successful future in the heart of Seattle.”
The Seattle Metropolitan Chamber of Commerce took a harsher line, saying, “Today's announcement from Amazon should come as no surprise, as the city has continued to implement policies that create an environment that is at best unfriendly, and at worst, outright hostile toward the needs of our largest employers. We need to come together around a clear and united vision to lift our city to a level where we can compete for business on a global scale, and keep companies like Amazon growing here.”
Speaking for the Downtown Seattle Association, Jon Scholes says, “I don't see a significant impact, really. I don't see any huge impacts to the real estate sector.”
He notes that several buildings are underway for Amazon, so “I don't see a slowdown in what they're doing in Seattle right now.”
Gardner sees two factors driving Amazon's decision: the lack of land to grow; and the lack of native tech talent. “They have tapped the talent pool,” he says. “We're not that huge a market.”
Amazon has been recruiting new employees here from all over the country and all over the world. Seattle isn't the draw. Amazon is. There are bigger talent pools in New York and the Bay Area, Gardner notes, but those are tremendously expensive markets for potential expansion.
For what it calls HQ2, Amazon is looking for a major city with a population over one million, where it will invest some $5 billion to create a campus with up to eight million square feet that might eventually house 50,000 employees.
That's 50,000 future employees who will not be eating, shopping, commuting or renting apartments in Seattle. (Or Bellevue, where Amazon is extending its footprint.)
Of those hypothetical workers, Scholes says, “I don't think anyone was anticipating 50,000 more headquarters-type jobs here. They're growing all over the world.”
Gardner says, “Potentially the greater heartburn is gonna come more for residential developers than for commercial. The negative connotations for the office market are really minimal. We tend not to build speculative office space.”
The regional vacancy rate for office space is quite low — 8.5 percent, according to a recent estimate by Jones Lang LaSalle. But all apartments are built on spec.
Gardner advises multifamily developers that this announcement “should give you some pause for thought. Take a step back for a few minutes. Take an extra breath.”
And Amazon's HQ1, as the Seattle campus is now called, is not going away. The company says it now has 33 buildings here with 8.1 million square feet and about 40,000 local employees. The global headcount is around 382,000. Amazon's director of global real estate, John Schoettler, has previously said the company expected to grow into about 12 million square feet locally.
“I think they will continue to grow here,” says Gardner. “They're not moving out of Seattle. This is nothing that we should be worried about.”
It's not like Amazon has announced or will implement a Seattle hiring freeze, a point made by both Gardner and Scholes. And Seattle has several more years to adjust to Amazon's HQ2 plan, which isn't expected to begin until 2019 — plus another few years of construction in Unnamed City X. (Austin, Texas seems to be the current favorite among rumor-mongers.)
Scholes says the city will continue to benefit from Amazon's pioneering of the urban campus, “really showing how that can work. That's certainly been a departure for many in the tech sector, a really significant impact that will continue to pay dividends. Amazon has really embraced the urban. It's been really beneficial … a model for others to follow.”
Even if Amazon's local growth isn't so explosive in the decades ahead, Seattle's urban real estate will remain scarce and valuable. And we have Amazon to blame and thank for that.