Amazon will report its third-quarter earnings on Thursday, but investors are eagerly awaiting a bigger announcement from Seattle in the coming weeks.
The ecommerce giant said it would unveil its choice of where to locate its second headquarters by the end of the year, capping off a high-profile contest across the US and Canada for a prize that will bring billions of dollars in investment and tens of thousands of jobs to the winning city.
Amazon and the 20 cities on its shortlist have been tight-lipped about the bidding process. But that has not curbed speculation over which city is leading the pack, with everything from Amazon’s Super Bowl ad and job listings, to the flight records of chief executive Jeff Bezos’s private jet feeding the rumour mill.
What is HQ2?
In September 2017, Amazon invited bids for a second home, dubbed HQ2, that would be a “full equal” to its Seattle headquarters.
The company said it would spend at least $5bn building a site that would eventually house 50,000 employees. The construction and operation would also “create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community”, Amazon said.
Amazon is seeking a location with plenty of local tech talent, a strong university, access to an international airport and, perhaps most critically, “a stable and business-friendly environment and tax structure”.
After receiving 238 responses to its initial callout, Amazon whittled the list down to 20 finalists in January, ranging from big cities such as New York and Los Angeles to regional contenders such as Raleigh, North Carolina and Austin, Texas.
Why is Amazon doing this?
The HQ2 search is an acknowledgment that Amazon’s next phase of growth cannot be absorbed by its hometown of Seattle.
Amazon was born in Jeff Bezos’s garage in 1994, but moved into Seattle soon after. Its rapid expansion has reshaped the South Lake Union and Denny Triangle neighbourhoods from car parks and warehouses to a forest of gleaming high-rises.
As Amazon’s Seattle workforce has swelled to more than 40,000, its footprint has expanded to 10m square feet — more than the next 40 biggest employers in the city combined, according to a 2017 Seattle Times analysis.
How has Amazon changed Seattle?
The company’s success has boosted the city’s economy and attracted a new generation of tech workers and businesses.
“Amazon is magnetic to talent,” said Jeff Shulman, a marketing professor at University of Washington’s business school who hosts a podcast about the city’s recent boom.
But it has also pushed up housing prices and commercial rents to the dismay of many local residents — a lesson that officials and residents of the winning HQ2 city will have to bear in mind.
“It’s hard not to love a lot of what’s happening to the city as it becomes more walkable and dense and transit-oriented,” said David Rolf, a longtime Seattle labour organiser. But “for the people priced out, the teachers, firefighters, home care aides, longshoremen, hospital workers . . . the question is, how could you manage growth in a way that is inclusive?”
What are cities offering?
Amazon has kept details about its decision-making under wraps. The finalist cities have too, thanks to non-disclosure agreements Amazon required them to sign.
Many cities have been able to keep their bids private because the economic development groups and public-private partnerships that put them together are not subject to freedom of information requests. In some cases, even local officials do not know what their cities and states have promised.
But much attention has focused on how much cities are dangling in tax breaks and other subsidies, both because Amazon said such incentives would be “significant factors” in its choice and because taxpayers would be on the hook to pay for them.
The biggest offer that has been made public comes from Maryland, where officials proposed a package of tax credits and infrastructure improvements worth as much as $8.5bn if Amazon chooses a location in Montgomery County, just outside Washington, DC.
Multibillion-dollar inducements are also on the table in Newark, New Jersey, where state officials have promised $7bn in tax breaks. Chicago, Illinois, and Columbus, Ohio, have each proposed more than $2bn worth of incentives.
Who are the front runners?
Financial sweeteners are expected to play a role in Amazon’s choice, given its long history of tax optimisation. But other factors matter too, and many have sliced and diced Amazon’s list of preferences to speculate over which city might best fit the bill.
“Incentives are overrated in the conversation about HQ2,” said Jason Horwitz, director of public policy and economic analysis at Anderson Economic Group, a consulting firm. “I think what Amazon is looking for is a place where they can attract the best talent in the world for the next 40 to 50 years.”
Anderson’s index ranking factors included in Amazon’s request for proposals, such as ease of transportation and cost of doing business, puts New York City at the top of the list — an outcome considered unlikely by many observers.
Based on housing market and quality of life, Raleigh in North Carolina topped a separate list by ATTOM Data Solutions, a real estate data company. A stockpicking artificial intelligence system at Wells Fargo picked Boston as the most likely candidate based on publicly available data.
Data analysis aside, the strongest speculation centres on Washington DC or the two nearby suburban areas on Amazon’s shortlist, Northern Virginia and Montgomery County in Maryland. Northern Virginia tops the betting odds on gambling site Bovada, while Paddy Power gives Boston the top shot.
Why is DC a favourite?
The DC area has some considerable advantages in its favour. It would bring Amazon close to the seat of government at a time when regulatory scrutiny of its business is on the rise. The company has already assembled the biggest lobbying team of any technology company in Washington.
“What is necessary for any large company is to have a presence in Washington, DC,” said Susan Wachter, a real estate and finance professor at the University of Pennsylvania’s Wharton School.
DC may also appeal to Mr Bezos on a personal level. It is home to the Washington Post, the newspaper he bought in 2013, and last year he paid $23m for the city’s biggest private house.
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