Colorado Wins in Amazon Move

New York headquarters fail may mean big business

In vying for the chance to be the site of Amazon’s second headquarters, New York offered $3 billion in incentives to persuade them, while Colorado offered just $100 million. Amazon seemingly selected New York only to break up with them this week and ditch their expansion plans. Colorado will be a big winner of this recent breakup. How does Colorado win? Why did Amazon ditch New York for cities like Denver? How will Colorado real estate be impacted? 

Why did Amazon break up with New York?

Originally, Amazon planned on adding 25,000 to 50,000 high-paying jobs in New York. This all changed last week when Amazon abruptly pulled the plug on New York City for their HQ2 expansion. Here is what Amazon said of their decision: “For Amazon, the commitment to build a new headquarters requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term." 

Several local politicians made it clear that they did not support Amazon coming to the city for various reasons. Media outlets reported that Amazon wasn’t willing to face the political backlash. Unfortunately, this is a very oversimplified answer to what occurred.  

What is the real reason that Amazon dumped New York?

Costs: I suspect Amazon wasn’t happy about the costs of the relocation.  New York has high property, local and state taxes. The new tax law increased costs further by capping deductions.  Along with tax issues, building costs continue to balloon due to New York requirements that require Union labor. For example, a journeyman carpenter in New York makes $50 an hour — with an additional $50 an hour in benefits — and many journeymen are used for jobs that don’t require anywhere near their level of skill. The incentive package in New York was basically to offset increased building costs.

Amazon saw writing on the wall: Through this process, Amazon could see that New York wasn’t going to be a good fit. Local politicians were blaming Amazon for various social woes and the whole process created unnecessary drama, resulting in Amazon backing out. 

Colorado was a top contender in the search

According to numerous media outlets, Denver ranked somewhere in the top five cities throughout the country (The NY times had Denver ranked as fourth) and Colorado, even with a smaller incentive package, is appealing because it is welcoming the industry and growth. Amazon used the initial selection process to see what benefits they could gain from each city and encouraged competition among cities for the sweetest package. 

It wasn’t only an exercise to gain benefits from cities but also have cities do the hard work of sending proposals to Amazon as opposed to Amazon having to do all the work themselves. This information will be critical in future site selections as Amazon continues to grow.

Amazon is already in Colorado

Amazon is already in Colorado with a corporate office, distribution center and a web services division. They have between 3,000 and 5,000 employees in the area, have added employees over the last several years and continue to have numerous job openings in the area. Denver is one of 16 regional offices throughout the country.

Amazon will follow the Google model

All the issues in New York taught Amazon a valuable lesson. When Google decided to build a facility in Boulder, there wasn’t a countrywide pageant. They chose the location and started adding employees. Boulder now employs over three thousand people. Amazon will likely follow the Google model going forward and continue expanding in existing locations like they are currently doing in Denver. Many of the employees that were bound for the new HQ will end up in places where Amazon already has a presence.

Why will Colorado benefit from the New York debacle?

Denver is a young city with one of the most highly educated workforces in the country, the reason it was at the top of the list for Amazon’s expansion. The education levels in the Front Range are why Google and others have chosen the area to expand. This well-educated workforce will continue to attract the likes of Google, Amazon, Facebook and Intel.

Amazon Spokesman Adam Sedo confirmed in an email to Business Journals that the 25,000 jobs planned for New York will be spread among these metropolitan areas: Atlanta, Austin, Boston, the San Francisco Bay Area, Chicago, Dallas, Denver, Detroit, Los Angeles, Minneapolis, New York, Phoenix, Pittsburgh, Portland, San Diego, Toronto and Vancouver.

If we divide the 25,000 estimated jobs by the 16 sites (assuming there will be no further expansion in New York), Denver and the Front Range would get 1,500 to 2,000 new high-paying jobs, possibly growing to 4,000 as Amazon continues to grow.

The average salary of these new positions is over $100,000. All these people will need housing and various commercial amenities such as restaurants, grocery and retail shops. These high-earning employees will help drive the Front Range’s real estate market.

The multiplier effect:

One of the best ways for a city or state to generate jobs for less-skilled workers is to develop and attract high-tech companies that hire highly skilled ones. High-tech knowledge jobs have the highest multiplier effect. According to Brookings, each tech job, five additional jobs are created. Two of these jobs are professional (doctors, lawyers, bankers, etc.) and three are trade (store clerks, plumbers, etc.). As Amazon ramps up in Denver, it will immediately bring 2,000 direct jobs and 10,000 indirect jobs and it may add up to 4,000 additional professional jobs in the future. If Amazon increased employment in Colorado to 4,000, the total impact would be 24,000 jobs, 12,000 of which would be highly-paid professional positions.

Colorado’s future

Colorado has carved out a niche as an “inland” Silicon Valley, with considerable tech and other entrepreneurial talent relocating to the area. This trend will not only continue but accelerate as Denver and Colorado’s young, well-educated work force continues to grow and the area continues to attract tech companies. Amazon’s decision to scrap New York will increase the draw to Colorado and other locations that are more agreeable to expansion than the coastal cities.

Categories: Real Estate