Will Amazon HQ2 set a new commercial real estate trend?

Powerhouse company Amazon has done something that might completely change the game. Again.

But this time it’s not related to any cutting-edge technology development or a new way of acquiring virtually any product existing in the world. This time, Amazon is about to change the real estate market, specifically the commercial real estate market.

Late last year, the company – located in Seattle since it was created in 1994 – announced it was expanding and looking for a second main office: the so-called Amazon HQ2. But here is where it gets interesting:  instead of having a team of commercial real estate professionals actively looking for commercial property to do its relocation, the company published an expansion announcement with a request for proposals from state governments and economic development organizations. Not only did they flip the normal home relocation process upside down by saying “Hey, instead of homebuyers bidding for a house, how about several home sellers bidding backward to offer me, the homebuyer, the best deal?”; they went above and beyond the property itself, almost asking the home sellers to make sure their prospective neighbors welcome them with their preferred refreshments and candies!

Of course, this hyper buyer’s market has a reason: Amazon HQ2 is not an ordinary expansion. Whichever city/state ends up being selected is said to benefit from the creation of more than 50,000 high-paying jobs! Not to mention spillover profits earned solely because of the presence of that commercial property in their community: business attracts business. In the end, one of those jobs can create more jobs than in the hotel industry, the restaurant industry, the transport industry etc… Therefore, it was not a surprise the number of cities interested in becoming one of two Amazon locations in the country – a total of 238 cities sent proposals; albeit some of them clearly did it just for marketing, as they couldn’t meet some of the request for proposals criteria. Like Kansas City Mayor Sly James, who ordered 1,000 products from Amazon and wrote 5-star reviews for every single item outlining something related to why Kansas City was the best choice to be the home for the Amazon HQ2. Do you think that was too much? Stonecrest, Georgia vowed to change its name to Amazon, Georgia should it be chosen. But it wasn’t. From those initial 238 Amazon Locations, there are now only 20, as the company reached its shortlist.

So, the hype is real and deserved. There’s no doubt Amazon HQ2 is a game changer all around. But what does it really mean?

First, it’s important to notice that Amazon HQ2 taps on a broader ongoing commercial real estate trend of a “race to the east”. Boeing’s expansion from Washington – just like Amazon – to Chicago in 2001 and Charleston, SC in 2008 was the first. Then, Nike has followed suit to Memphis, TN. And now, commercial real estate experts say the Amazon locations more likely to become Amazon HQ2 are the ones on “The Golden Triangle” – a region that spans from Florida, to Texas, to Lake Erie – and is responsible for the production of approximately 50 percent of the annual US GDP. The region is home to a high number of skilled workforce that could benefit the company’s e-commerce and logistics departments. 10 of the 20 cities on the shortlist are inside The Golden Triangle.

However, like we said, Amazon HQ2 is only part of that movement; not the creator. So, no, the race to the east is not the real estate trend we mention in the title.

The alarmists might be thinking, then, that the real estate trend this blog title refers to is companies passively finding new commercial property, thus making real estate professionals obsolete. And they couldn’t be more wrong.

The internal commercial real estate team at Amazon was instrumental in drafting the game plan for Amazon HQ2. They were the ones who lined up which tax credits, fees reduction, relocation grants and real estate growth plans they were interested in seeing in the prospective Amazon locations’ proposals. And their work hasn’t stopped with the expansion notice. They still are the ones with the knowledge to analyze the infrastructure features of the prospective Amazon locations. Supply of available storage: are there many vacant? Are they expensive to buy? Is it better to build it from the ground up? What about logistics? Which spot has better access to trains, roads and airplanes for that quick shipping?

Plus, the truth is that few companies have the attractiveness Amazon has. Even fewer can bring 50,000 jobs along when relocating. So, although we might occasionally see some similar movements, that is also not the new commercial real estate trend we are referring to.

To finally answer the question proposed on the title of this post: the commercial real estate trend Amazon HQ2 will set is actually the development of a sort of lifestyle guideline when searching for commercial property. A human side to what used to be a simple infrastructure decision. Remember the part where we joked regarding the home seller making sure the neighbors would bring cookies? Well, the four guiding principles published in Amazon’s request for proposals – customer obsession rather than competitor focus, passion for invention, commitment to operational excellence and long-term thinking – proves that notion: community-building is one of their main worries in this expansion process. And that’s not only for Amazon, it is a global concern with most of the companies and retail out there.

That is because ever since technology became so intertwined with all sorts of businesses, the demand for a high-skills workforce has dramatically risen. So, it’s not only Amazon; any company wishing to expand needs to pay extra attention to community building: what good is an office building that is completely far away from desirable places for its workers to live in, with no option to build an environment that will keep workers excited about being there? Some time ago, big companies would see their workers as numbers, and workers would give everything to take benefit of their stability and benefits. But now, this type of workers are no longer enduring rough patches to earn their money. Just like their salary, they demand good cultural and behavioral environments inside and outside of their workplace.

While everyone is making comments about Amazon’s power play, the real news here is how – despite a general fear of humans being replaced by machines and whatnots – the skilled workforce is in demand and big companies are seriously taking them into consideration when making their plans.

An approximation to the way residential real estate acquire properties – thinking first and foremost on the quality of life to be lived there – is the real new commercial real estate trend set in motion by the Amazon HQ2.