Which City Will Win Amazon’s “HQ2” Contest?

Amazon just set off an Olympic style search for a city to host its new $5 billion headquarters. The company outlined what it’s looking for in an 8 page Request for Proposal that asked for qualified metropolitan areas to enter the competition for this project. Amazon wants: a metro area with more than one million people; that has a business-friendly government; lots of tech workers; a good quality of life; and is willing to give Amazon a good deal.

In addition, Amazon is looking for a location that already has the infrastructure in place: access to fiber internet, mass transit, major highways, an international airport, and a large population center.

In exchange, whichever city is chosen will be rewarded with massive investments and economic growth. By Amazon’s estimates, in the 7 years since the company moved its headquarters to downtown Seattle, the company has directly injected over $30 billion into the city’s economy, and indirectly fueled growth of another $55 billion. The new headquarters, nicknamed “HQ2”, is expected to have a similar impact, while also adding a permanent workforce of up to 50,000 additional white collar jobs.

There is already a lot of speculation about which cities are the most suitable and which is the most likely to be chosen. Every local newspaper (and every local mayor) believes that their city has the potential to attract Amazon, but most short lists of potential finalists include Atlanta, Austin, Boston, Chicago, Dallas, Denver, Philadelphia, Toronto, and Washington, DC. Some are also mentioning smaller cities such as Pittsburgh.

No city truly meets all of Amazon’s requirements, so most of the potential lists are eliminating cities based on which ones can meet every imaginable minimum. By that standard, the New York Times narrowed it down to Boston, Denver, and Washington, DC, and ultimately chose Denver.

Denver is a strong candidate, but it really depends on what Amazon actually values. Past job growth (what the New York Times uses to eliminate half of the cities on their list) is not even mentioned by Amazon.

Instead, the company repeatedly talks about looking for a stable and consistent business friendly government and economic environment. Job growth might be a good proxy to rule out the dysfunctional cities that Amazon clearly has no interest in saving, but job growth isn’t necessary to meet a stability requirement, and the future job growth will follow Amazon anyway.

The common theme for Amazon’s preferences is that the company appears to be looking for a city that will be a reliable long-term strategic partner that can already support a large, highly educated workforce.

Tech Jobs

We’ll start by looking at cities that already have plenty of tech workers—not necessarily job growth. Any metro area above 1 million people and above 100,000 tech jobs will make our list.

This leaves about 25 potential cities (Seattle is included for comparison).

City Tech Jobs Percentage of Jobs in Tech New York 671,292 7.10% Los Angeles 523,268 8.90% Washington, DC 442,258 13.50% Chicago 425,925 9.20% Houston 361,719 11.90% Boston 355,602 13.30% Dallas 354,733 10.30% San Francisco 347,802 15.30% San Jose 329,409 31.20% Seattle 308,210 15.80% Detroit 302,781 15.50% Philadelphia 246,917 8.60% Atlanta 229,427 8.80% Minneapolis 187,014 9.50% San Diego 184,759 12.30% Phoenix 158,775 8.20% Denver 146,826 10.40% Miami 142,383 5.60% Austin 127,514 13.10% Portland 125,849 11.00% Baltimore 125,035 8.90% St. Louis 114,316 8.30% Kansas City 109,208 10.20% Pittsburgh 109,182 9.30% Charlotte 106,203 9.50% Tampa 102,974 8.10% The map is wide open.

Infrastructure

From here, it’s difficult to put hard numbers on what Amazon is looking for. The infrastructure requirements could be built, but it’s better for Amazon if most of those elements are already in place and relatively safe from damage. With that in mind, we’ll drop the cities that, over the long term, routinely risk major infrastructure damage (for example, Houston and Florida for hurricanes, and California for earthquakes). We’re also removing Portland because it’s too close to Seattle.

For the rest, we’ll use the city’s mass transit qualifications as a proxy for its overall infrastructure. To do this, we’re using AllTransit’s overall transit score that ranks cities based on quality of mass transit and access to mass transit. This ranking considers the number of connected routes, number of connected jobs available, and the number of workers using mass transit. Any major metro area in the top 25 will remain on our list.

This eliminates the cities that rely heavily on cars, an issue that Amazon is trying to avoid, and cuts our list down to just 9 potential cities. What we have left is a list that is very similar to what most people are predicting.

City Tech Jobs Percentage of Jobs in Tech Transit Score Region New York 671292 7.10% 6.88 Northeast Washington, DC 442258 13.50% 5.63 Northeast Chicago 425925 9.20% 5.12 Midwest Boston 355602 13.30% 5.09 Northeast Seattle 308210 15.80% 5.13 Pacific Philadelphia 246917 8.60% 4.88 Northeast Minneapolis 187014 9.50% 3.93 Midwest Denver 146826 10.40% 5.35 Mountain Baltimore 125035 8.90% 4.46 Northeast St. Louis 114316 8.30% 3.90 Midwest On our map, it fades out most of the smaller metros and all of the West Coast and Southern cities. It favors the Northeast.

Space, Politics, and Culture

We have to consider the availability of space and the willingness of the local government to make a deal with Amazon. This means that Boston, New York, and Washington, DC are probably out—they’re all too crowded to accommodate such a large project. Chicago’s government might have issues convincing a selection committee that it has long-term stability, but it remains a strong candidate in every other way, so it stays.

Amazon is a progressive company headquartered on the West Coast. It seems reasonable that the company would want to put HQ2 on the East Coast, and that it would want to partner with a city that shares many of Seattle’s values. But we don’t know how much Amazon values those factors.

One thing Amazon does say is that “a strong university system is required.” This is a bit vague. Does this mean only the highest quality college, or is there some adjustment for the number of students? How far away from the city’s metro area? This one is difficult to judge.

At a minimum, all of these cities have at least one major high quality university either inside the city or “nearby”, and the Northeastern cities have a clear advantage. St. Louis—despite being home to Washington University—probably doesn’t have enough of the type of students Amazon would be looking for, so we’ll cut that one from out list.

This leaves five finalists: two cities in the Midwest (Chicago and Minneapolis), one in the Rocky Mountains (Denver), and two in the Northeast (Baltimore and Philadelphia). All of them potentially have what Amazon is looking for.

For comparison, we’re adding the cost of leasing office space, but we don’t expect it to be a major factor in Amazon’s decision—cultural fit will be more important than price, and Seattle office space is more expensive than all of our final five.

City Tech Jobs Percentage of Jobs in Tech Transit Score Region Office Price Per SF/Year Chicago 425925 9.20% 5.12 Midwest $23.24 Seattle 308210 15.80% 5.13 Pacific $27.81 Philadelphia 246917 8.60% 4.88 Northeast $22.28 Minneapolis 187014 9.50% 3.93 Midwest $14.81 Denver 146826 10.40% 5.35 Mountain $22.48 Baltimore 125035 8.90% 4.46 Northeast $18.78

The New York Times methodology removed four of these five cities in the first round, but we believe that they all have a chance to be considered.

By culture alone, Denver is the closest thing to Seattle, but we don’t know how much the company values having a foothold on the East Coast. Beyond that, the city that is most likely to grab Amazon’s attention is the one that offers the best deal.

But what should these cities offer to Amazon?

Since 2005, Amazon has been awarded more than $1.5 billion in subsidies and tax breaks for corporate investments, but this project is on a scale that no other company has ever tried before.

The cynical view is that Amazon already has a city in mind, and this competition is only a way to get the best deal out of them. Another pessimistic view is that Amazon is just looking for the biggest government handout, no matter which qualified city provides it. Or, perhaps the company intends to walk away when a better deal shows up (maybe HQ2 is really a slick way of dumping Seattle?). If any of those risks became reality, the smart move is to make a bid as if there is no competition.

Those scenarios are very unlikely. Amazon’s history shows a company that has proven to be interested in long-term strategic investments, and it will partner with a city that shares its values. It’s a two-way street.

With a potential to bring in more than $50 billion in outside economic growth, even a huge incentive package of $1 billion or above could potentially be worth it, but there are hidden costs that must be weighed. The addition of new business following Amazon into the city might not materialize. Other companies might see the city as a weak negotiator that is an easy target for expensive incentives that don’t make sense. Infrastructure could become overburdened. Housing could become unaffordable for non-office workers in the area. Cities have to be fair to the people who already live there.

It’s impossible to determine exactly what Amazon will do, but once the company makes a decision, it’s a good bet that the real estate in the surrounding area will become more valuable—Seattle’s growth has already proven what can happen when lots of new tech jobs move into the area. Whether that makes it an attractive investment remains to be seen. We’ll be sure to take a close look at what happens next.