Amazon's Plans to Hurt Seattle Property -- WSJ
October 09 2017 - 3:02AM
Dow Jones News
New headquarters is likely to divert growth away from the online
retailer's hometown
By Peter Grant
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 9, 2017).
Amazon.com Inc.'s decision to establish a second corporate
headquarters is going to make some North American city very happy
once the online retail behemoth announces its choice next year.
But it will likely be bad news for Seattle, Amazon's longtime
home, which has benefited enormously from the company's rapid
growth. Analysts predict that much of the company's future
expansion will be in its second headquarters.
"It had generally been assumed that [Amazon's] growth would be
concentrated in Seattle," said Dave Bragg, an analyst with Green
Street Advisors, a real-estate research firm. "That now needs to be
adjusted."
Green Street, in a new report titled "Sleepless in Seattle,"
lowered its 2018-21 growth estimate for the city's office sector by
an average of 1.5 percentage points. In the near-term, growth is
expected to be "modestly" slower in the apartment, industrial and
strip-center sectors, the report says.
When Amazon announced its search for a second headquarters last
month, the company said it expects to invest more than $5 billion
in the new location and create up to 50,000 high-paying jobs.
Amazon hasn't said how the move will affect its plans for growth
in the Seattle area. Before the announcement, the company had said
it expected to add another 2 million square feet of office space to
the 8.1 million square feet it currently occupies across 33
buildings in the city.
"Uncertainty surrounds Amazon's previously reported leasing and
construction plans," Green Street noted in its report.
Real-estate experts believe Amazon's decision might inflict more
harm to Seattle area growth than Boeing Co. did when it moved its
corporate headquarters to Chicago in 2001. Boeing moved "a few
hundred headquarters jobs" but maintained most of its manufacturing
operations in the Seattle area, noted Simon Stevenson, chairman of
the real estate department at the University of Washington.
In technology businesses, the distinction between manufacturing
and headquarters jobs "is a lot more blurred," he said. "You could
see a lot more movement of staff."
Mr. Stevenson also pointed out that the Amazon move coupled to
the earlier Boeing decision might create an image problem for
Seattle among businesses considering locating there. "At what point
do people start thinking it's a Seattle problem," he said.
Seattle has had one of the strongest real-estate markets in the
country in recent years. Commercial property values there have
doubled since 2010, compared with a 61% increase in the top 50
markets tracked by Green Street.
Amazon is responsible for as many as one-third of the jobs
created there since 2010, according to Green Street. About 40,000
people worked for Amazon in the Seattle area at the end of 2016,
Mr. Bragg said, up from 4,000 in 2010.
Another 53,000 jobs can be indirectly tied to the company, he
added.
That growth has had a multiplier effect throughout the regional
economy, boosting residential prices, retail rents and demand for
other property. "Amazon has had a massive impact on Seattle's
outperformance," Mr. Bragg said.
The Seattle economy is now being stoked by demand from a range
of other companies like technology firm F5 Networks Inc., which
leased more than 500,000 square feet in the city in the second
quarter. The Puget Sound's office vacancy rate was 11.3% at the end
of the quarter, compared with around 16% in 2012, according CBRE
Group Inc.
Amazon hasn't said why it is expanding its growth beyond
Seattle.
But the Green Street report speculates that a shift in the
city's regulatory climate might have played a role in the company's
decision to expand elsewhere. For example, Seattle recently
approved an income tax on wealthy households, a move that is being
challenged in court.
"It's not too hard to connect the dots," Green Street's Mr.
Bragg said.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
October 09, 2017 02:47 ET (06:47 GMT)
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