Amazon released a shortlist of the potential sites for their second headquarters, and fortunately for many (and unfortunate for others) Vancouver did not make the list. Amazon did not provide insight into their decision-making process and why Vancouver couldn’t facilitate their needs but I believe it is a combination of the following
1. Scarcity of available land in Vancouver.
Vancouver does not have the land to fulfill the volume of space Amazon would need for both additional residences for their employees and also the availability of a large enough tract of development space for their “business campus”. It is estimated that Googles Campus in California is over 100 acres of land, with an estimated 3.2 million square feet of improvements (offices, labs, etc..). With that in mind the availability of bare land, paired with cost of land in Vancouver region, makes it unfeasible to have ever expected Vancouver to house Amazon HQ2 without incurring major development costs.
2. Attractiveness of Vancouver for Employees at current salaries.
Without going overboard on the details here. There’s simple economics at play for each and every potential employee. Sure, Vancouver is a beautiful city in which many people are willing to take less pay (in comparison to other large city’s) to live in but the cost of living outpace most large city’s in North America especially when comparing median income to housing costs. It would have been an up-hill battle for Amazon to attract skilled personnel to the Vancouver space.
3. The redundancy of having both headquarters within 600KM of each-other.
Any person with a simple perspective of how supply chain management and Amazon is structured will understand why this point holds true save the folks who believe it is beneficial for both headquarters to be in the same time zone. Sure, that may be true but we live in a far too connected world today for this to be a major issue.
4. The recent corporate tax changes in the United States.
The recent tax changes which passed came into effect in the past 60 days in the United States were driven with the expected outcome of returning American businesses back to the U.S. by creating a more favourable taxation landscape, which is expected to increase employment opportunities, demand for labor and in the future an increase in median household income. This would allow Amazon to increase its profit margins, fulfill a duty to its fellow Americans and take advantage of the expected infrastructure improvements.
These are all good things for prospective homeowners who will not have to compete with an large influx in population; due to Amazon recruiting employees who would have to move and reside in Vancouver. I believe this would have prolonged and added to the housing affordability issue within our current market space, especially when considering the demand side is already outpacing the supply side.
Unfortunately for the common real estate investor this will decrease any chance of amazon increasing the demand side for the rental pool with renters who are working in a stable company, with verified income (more on why this is important another time). As we have seen over the past 36 months most investment purchases are no longer based on a positive cash flow basis (which If you find in Vancouver, I want in!) and a shift to sheer speculation on expected future price appreciation is driving investor buying decisions*. This issue will only be exasperated over the next 12-18 months with future interest rate increases reducing the number of investors willing to take on the additional risk, decreasing the investor demand and therefore price growth would be expected to slow.
*for investors buying 1 or 2 condominium/apartment units. This is not the only driving force for redevelopment driven investment decisions.
Who knows where Amazon will end up, and I’m sure many of you who clicked onto this write up are wondering who actually cares. I thought about that but it is a fascinating case study for myself as it blends my passion for technology with real estate and economics in a real-life situation.
“Ok, Troy. So where is Amazon going to end up building its HQ2?” I have not delved into the locational cost benefit analysis of the remaining contending city’s but on a hunch I believe it will remain within the United States and be based in a forward-thinking expanding city such as Dallas, Texas or (my top pick) Atlanta, Georgia.
This is my view, whether its right… or wrong is up for debate.
For Further Information on the subject I suggest the following articles.