Why Amazon’s second HQ probably won’t be in Boston
In January 2016, I explained why General Electric’s next headquarters address would be Boston, not Manhattan. Two days later, the company announced it was coming to town — despite being offered richer incentives by the Big Apple.
This week, I unfortunately must explain why Boston is an extreme long shot to be chosen as Amazon’s “second headquarters.” Amazon said Thursday that it will spend more than $5 billion to build another base of operations in North America and hire about 50,000 people to fill the new complex. That number far overshadows the 800 jobs that GE promised the city it would bring to Boston in order to get a tax break.
Cities interested in winning Amazon’s second HQ have until October to express their interest — digitally, of course. Mayors who are Amazon Prime members will receive a response in two days. (Not really.)
What would give Boston a leg up? Amazon already employs thousands of people in Massachusetts at several locations in Back Bay, Cambridge, and North Reading, mainly in technology development roles. (The company’s first big move here was its acquisition of Kiva Systems, which makes robots that work in warehouses, back in 2012.) In July, the company said it would move into yet another location, in Boston’s Fort Point Channel neighborhood, bringing 900 more jobs.
Given that Amazon has been making moves into brick-and-mortar retail, with its recent $13.7 billion purchase of Whole Foods Market, it could hire plenty of fresh talent from Boston-area retailers like Staples, TJX Corp., BJ’s Wholesale Club, and grocer Ahold USA. There’s also a pool of people who understand online commerce at companies like Wayfair, TripAdvisor, and Rue La La.
Despite all that, I don’t think Boston ends up in the top 10 contenders for Amazon’s second HQ. Wish it was enough — Bezos and I both grew up in Florida, and in 2001 we exchanged holiday gifts as part of a story I was writing — but it’s not.
The big reason is cost of living. If you’re trying to hire recent college graduates and move mid-career professionals from other places to this new North American HQ, cost of living is a big consideration. And Boston, according to Kiplinger, is currently the eighth most expensive place to live in the United States; Seattle is number 10. The median home price in the Greater Boston area, as of July, was $615,000, according to the Greater Boston Association of Realtors.
“Boston is so similar to Seattle in terms of demographics, density, and even cost,” says Roy Hirshland, chief executive of T3 Advisors, a corporate real estate advisory firm in Boston. “Typically, when someone is looking to do a second major hub, they’re looking to tap into a different set of demographics.”
Boston also has a 3.3 percent unemployment rate, Hirshland points out, forcing a fast-growing company like Amazon to either import people or poach them from local companies. “If you’re going to scale to 50,000 people and you’re in the creative economy, you’re going to have a tough time doing it in Boston,” Hirshland says. “Companies like Akamai and Wayfair have done really well, but even after a decade or so, they’re not even close to 10,000 or 20,000 employees here.”
Another dynamic in play is that Boston won’t be the most aggressive contender when it comes to tax incentives; the city and state’s $145 million package for GE was criticized after it was announced, and there has been some picketing at the company’s public events. (Compare that with the $3 billion package that the state of Wisconsin put together to attract a major Foxconn electronics factory.)
“Are we going to throw the most money at them? No, we’re not,” says Greg Bialecki, who served as secretary of housing and economic development under Governor Deval Patrick. “We will almost certainly be outbid on this, and probably dramatically outbid. The question is, do our natural advantages — talent, educational institutions, our major international airport — put us in the running, even if we’re not giving the best offer?
Last thing: the speed of erecting new buildings. Amazon is in the midst of a building and leasing spree in Seattle. Its headquarters consists of 33 buildings, with more than 40,000 employees. How quickly could Amazon pop up a half-dozen high-rises in the Seaport, Somerville, or Back Bay? Let’s just say that a drone will drop off your deodorant before that happens.
So where does Amazon’s new HQ end up?
The most interesting dark horse candidate, to me, is the Toronto-Waterloo region in Ontario. From a political perspective, it’d be a huge poke in the eye to President Trump and his anti-immigrant policies. Toronto has great universities, a tech-savvy workforce, and it would be a North American city that could easily, reliably import talent from all over the world. And after the demise of Research in Motion — remember the BlackBerry? — Ontario is hungry for a fast-growing employer.
But thanks to the weather, high-volume airports, appeal to recent grads, and low cost of living, I think cities like Atlanta, Orlando, Austin, and Dallas are well-positioned. Charlotte, Cleveland, and Denver could also credibly be on the top 10 list.
“Wherever they go, it could become a new tech hub,” says Bialecki, now a principal at the Boston-based real estate development firm Redgate. “It’d be a big deal for a city that didn’t have a reputation for tech.”
“Boston is a really strong candidate from a talent perspective, but hiring 50,000 people means you’re looking for about 10 million square feet of space,” says David Townsend, executive managing director at the commercial real estate firm Newmark Grubb Knight Frank in Boston. For that reason, Townsend says, “I could maybe see Atlanta or Austin working from a real estate perspective.”
I just don’t think Boston is well-positioned to win this one. Our only consolation? Neither is New York.