New Locales Are Prime for Amazon’s Dual HQ

NetCMG's Jonathan Hipp points to the market-wide shifts that are already occurring in the wake of the e-commerce giant's rise, accelerated by the company's decision to split its new headquarters.
Jonathan Hipp

Well, it seems Amazon has done it again (made headlines and stirred up its share of controversy over another strategic decision). This one involves the choice to split its second headquarters (the first is in Seattle). The so-called HQ2 will bring a total of 50,000 people to new facilities in both Long Island City and Crystal City, just outside of Manhattan and Washington, D.C., respectively.

Overcrowding, traffic and residential pricing and availability have all come up from naysayers who apparently would prefer the neighborhoods stay as they are, and in their arguments they use such words as nightmare and disruption.

We understand their concern. No doubt the moves will be transformative for each of those locales, but we believe that, in the balance, the clear positives will outweigh the perceived negatives.

Capital begets capital

Here’s why. Capital begets capital. And there will be bags of capital pouring into Long Island City—$3.7 billion from Amazon alone. One need only look at the transformation of Chelsea Market in Manhattan after the appearance of that other 800-pound tech gorilla, Google, when it set up shop at 111 Eighth Avenue. It served as an incubator for jobs, residential construction and retail expansion.

Where new jobs open up, the housing and retail venues to support them cannot be far behind. And so we believe it will be with Amazon, in both the D.C. and New York City locations. Of special interest to us, of course, is the retail sector, and net lease in particular.

In future months, Amazon will serve as a catalyst for retailers of all stripes, both in mixed-use multifamily and office projects and standalone retail stores, the bread-and-butter of the net lease market. Many of those retailers will represent the services that can’t be found on Amazon—and yes, there are still some.

These include services such as restaurants, entertainment venues—a critical component of the live-work-play environment of these already hot markets—as well as auto shops, pharmacies and dry cleaners. And can a proliferation of Whole Foods be far behind? The result for investors will be downward pressure on cap rates and the resultant upward pressure on prices, which indicates a new era of value for the local markets.

Location parallels

Interestingly, there are some striking similarities between the two target locations. Both are up-and-coming with an influx of Millennials. In fact, Long Island City has already been proclaimed New York City’s hottest and fastest-growing submarket, a haven for Millennials with it’s arm’s-reach access to Manhattan and slightly lower (if constantly rising) prices. No matter the location, this young and prosperous generation will define the retail/entertainment shape of their neighborhoods.

So it seems the changes that Amazon will bring have already been in the works. HQ2 will only accelerate them. Yes, the transformation will continue. It’s called progress.