The lessons of HQ1: What the cities vying for Amazon’s second headquarters can learn from Seattle
When the Great Recession hit Seattle in 2008, the region was better known for Boeing jets, Starbucks coffee and Microsoft programmers than it was for a rapidly growing online retailer called Amazon.com.
But that was about to change. As unemployment soared above 10 per cent, downtown office vacancies hit 20 per cent and home values plunged, a plan to consolidate Amazon’s then-4,000 employees in a downtown campus was already taking shape.
Fast forward a decade and Amazon has 40,000 employees in the Seattle region, most of them in 37 buildings clustered in a district known as South Lake Union and adjacent to downtown neighbourhoods.
The company says it has added US$38 billion to the Seattle area economy from 2010 to 2016, and that 53,000 additional jobs have been created as a result of its presence.
Now Amazon has cities across North America, including Toronto, vying to host a second headquarters — dubbed HQ2 — one that Amazon says will bring “as many as 50,000 high-paying jobs” and in which it expects “to invest over US$5 billion.”
But while Seattle has reaped massive benefits from Amazon’s growth into one of the world’s biggest companies — and the South Lake Union campus has been heralded as a model of urban revitalization — there have also been costs, which HQ2 hopefuls such as Toronto would be wise to keep in mind.
“The biggest single thing on the mind of most Seattleites … is the way the city has become unaffordable,” says David Rolf, a prominent Washington State union leader who represents long-term care workers.
Part of Amazon’s headquarters in Seattle.
Seattle is now rated the seventh most expensive city in the U.S. by the Cost of Living Index, a measure put out by the non-profit Center for Regional Economic Competitiveness that looks at housing, utilities, healthcare, groceries, transportation and miscellaneous goods and services.
Online realtor Zillow says the cost of an average home has nearly doubled to $722,000 in the past five years and the region’s median housing rent of $2,203 puts it in the Top 10 among U.S. cities.
Those sky-high housing prices have left Seattle with the nation’s third-largest homeless population, estimated by a recent count at 11,643 people.
“Despite the economic prosperity … in part because of it, Seattle is facing a homelessness crisis of unprecedented proportions,” Ben Noble, the city’s budget director, wrote in the city’s 2018 budget.
The duelling legacies of Amazon’s first headquarters would have been almost inconceivable when the seeds of Seattle’s boom were being sown.
Amazon founder Jeff Bezos started selling books out of his garage in the Seattle suburb of Bellevue in 1994.
In 1995, Amazon.com opened with a website advertising itself as “Earth’s Biggest Book Store.” Within a month it was selling books in every U.S. state and in 45 countries.
By the early 2000s, as Amazon continued to grow, a real estate company called Vulcan, controlled by Microsoft co-founder Paul Allen, had acquired 60 acres in the South Lake Union area.
Located north of downtown, South Lake Union was a sleepy 359-acre neighbourhood with about a thousand residents, some parking lots, light industrial sites and shops. One of the busiest places on Sunday mornings was Denny’s restaurant.
Allen’s vision was to transform the area into a centre for biotech, with commercial and residential sections mixed in.
Jeff Bezos, founder and CEO of Amazon, smiles while touring the Spheres during opening day ceremonies at the company’s campus in Seattle.
By 2007, however, Vulcan had shifted gears and was devising a plan to develop a headquarters for Amazon, which had by then experienced phenomenal growth but had its employees scattered in offices across the city.
Ten new buildings were built, with about 1.7 million square feet of office space, and the Amazon campus — full of staff sometimes known as Amazonians — was born.
Amazon’s office space in South Lake Union and adjacent neighbourhoods has since blossomed to more than 11 million square feet, greater than the combined office space of the city’s next 40 largest employers.
As vice-president of Vulcan Real Estate, Ada Healey led the effort to transform South Lake Union, including developing Amazon’s headquarters.
Though she says there are some problems that need to be addressed, Healey stresses the benefits Seattle has reaped.
“While people are quick to lament the ‘growing pains’ of development, there’s more opportunity for cities that take a smart, strategic and forward-looking approach, as we’ve see in Seattle from job creation to the revitalization of overlooked neighbourhoods,” Healey says.
She acknowledges that better transportation planning — Seattle has some of the worst traffic congestion in the U.S., and the fastest growing transit ridership — is a must.
“Transit and transportation infrastructure planning is critical and must address the future needs of a city, not its current conditions,” Healey says.
To better prepare for growth, Healey wants city planners and real estate developers to think “two steps ahead” in terms of the region’s needs.
Seattle is moving in that direction, but it does not come cheap.
In 2016, voters approved a US$54-billion plan to expand light rail, bus and rail transportation.
The city has also invested about $675 million in South Lake Union infrastructure in recent years, on power distribution, a streetcar system, parks, traffic mitigation and roads.
A South Lake Union streetcar in Seattle.
Solutions for housing may be harder to come by.
Rachael Myers, a Seattle-based social housing expert and director of the Washington State Low Income Housing Alliance, worries that the influx of highly paid tech workers will continue to lead to big rent increases.
“It’s really clear, there’s a direct correlation between rents rising and homelessness increasing,” Myers says. “For people who are hanging on (to housing) … moving around regularly they’re doubling and tripling up in ways that aren’t necessarily healthy or conducive to creating a good living environment.”
Labour leader Rolf wants to see housing for the “missing middle” to address a growing fear that retirees, renters and young people may be pushed out of the city.
Whether Amazon itself has done enough to directly help address issues the city is facing is another question.
Lisa Herbold, one of Seattle’s nine city councillors, wants companies such as Amazon to go beyond philanthropy and show leadership on such issues.
“Bottom line is we need more revenue,” she said, in urging impact fees to help pay for growth. “You can’t manage growth without the funding.”
For its part, Amazon says it has been ramping up its contributions to the community.
Spokesperson Sam Kennedy sent the Financial Post a list of its efforts, including that “Amazon has committed more than $30 million dollars to support homeless families, STEM (science, technology, engineering and math) education, and job training programs in Seattle.”
Despite the city’s issues, many are reluctant to put too much of the blame at Amazon’s door.
“Amazon grew rapidly and exacerbated problems that were already present,” says University of Washington professor Margaret O’Mara, a former White House policy staff who teaches about high-tech economies.
Amazon has said it expects to make a decision on HQ2 sometime in 2018.
Besides Toronto, there are 19 U.S. cities on the shortlist, with Austin, Texas, and either Washington, D.C., or nearby Northern Virginia perceived by many as the leading candidates.
Ken Greenberg, a Toronto based urban designer-architect and former Director of Urban Design and Architecture at the City of Toronto, says the cities in the running should be cautious about what they are getting themselves into.
“This has become a lottery where people think they’re just going to win an enormous amount of money and that having this population coming in, it’s going to be an unmitigated good for the city,” Greenberg said.
That mindset has led some contenders to pull out all the stops — New Jersey, for example, has offered as much as $7 billion in tax breaks to Amazon if HQ2 locates in Newark.
Toronto has not offered direct financial incentives but it is likely the city would need to make infrastructure and transportation investments to handle up to 50,000 Amazon employees and those of related companies.
Understanding Amazon’s other “asks” and “looking with open eyes what the impacts are likely to be” are musts, Greenberg says.
Ultimately, the decision may come down to just what is most important to Amazon: perks, proximity to the powers that be in Washington, or the highly skilled workforce needed to build on the company’s stunning growth.
Trying to figure that out, as the University of Washington’s O’Mara puts it, is something of a mug’s game.
“No one can read the mind of Jeff Bezos.”