E-COMMERCE 

After Amazon names Austin among finalists for second headquarters, what’s next? 

Posted January 18th, 2018

Online retail giant Amazon.com confirmed Thursday what many economists and business analysts have predicted for months: Austin remains in the running for one of the richest economic development deals in U.S. history.

Riding its hipster vibe and high-tech reputation, Austin was named one of 20 finalists for Amazon’s giant second headquarters project. Dubbed “HQ2,” the project promises to bring 50,000 high-paying jobs and $5 billion in investment.

Thursday’s announcement comes three months after 238 cities across North America submitted bids, and it formally pits Austin against other expected players including Atlanta, Boston, New York and Pittsburgh. Dallas is the only other Texas city to make the short list.

Amazon has not said when it would announce the winner of HQ2, only that the decision would be made sometime this year.

“Getting from 238 to 20 was very tough – all the proposals showed tremendous enthusiasm and creativity,” Amazon spokeswoman Holly Sullivan said Thursday. “Through this process we learned about many new communities across North America that we will consider as locations for future infrastructure investment and job creation.”

The selection of the short list of competitors is expected to further intensify the economic battle that has already seen cities and regions promise billions of dollars in incentive payments to win Amazon’s favor. Amazon has said salaries at HQ2 will average more than $100,000 annually, and that the facility could eventually take up 8 million square feet of space.

Whichever city lands the HQ2 project will gain a huge influx of high-paying tech jobs and the prestige of becoming one of Amazon’s most important operation sites. But it will also be getting a monumental infrastructure challenge, a possible disruption of its housing market (higher home prices and rents) – not to mention being on the hook for potentially billions in incentives dollars.

‘A long process’

The Greater Austin Chamber of Commerce submitted a bid for HQ2 on behalf of Central Texas on Oct. 18, about a month after Seattle-based Amazon publicly asked cities to bid.

City and chamber officials declined Thursday to discuss what the next steps might be for Austin.

Chamber spokesman Mike Berman said the chamber is looking forward to “presenting the best of what our region has to offer and how we can partner with Amazon.”

Amazon said it would continue to examine the remaining cities while requesting additional information and reviewing the project’s feasibility in each possible site.

“This is going to be a long process,” Austin economist Angelos Angelou said. “There are huge benefits from attracting a huge corporate name, but it could also bring its challenges. In our economic history, we have companies like Dell that were founded here, and others were recruited, but they never came in and brought 50,000 people. While Austin has the experience of how to win competitions like this, this public competition is very different.”

Since Amazon announced plans for its project, analysts have considered Austin a contender because of the city’s young labor force, flagship University of Texas campus, tech scene and livability, factors that line up with Amazon’s criteria for HQ2. Amazon’s recent acquisition of Austin-based Whole Foods Market has also been seen as a possible motivator to build HQ2 in Central Texas.

Additionally, observers have noted Texas’ lower taxes, softer regulations and strong business scene as factors that could lure Amazon to the state, with the capital city potentially offering Amazon proximity to state lawmakers.

Gov. Greg Abbott said Thursday that both Austin and Dallas have proven to be desirable locations for businesses. If Amazon picks Austin or Dallas for the project, it’s expected that most of any financial incentives would come from the state.

“I am confident that the economic advantages of an Amazon expansion in Texas speak for themselves, and make either Austin or Dallas an ideal fit for Amazon’s HQ2,” Abbott said in a written statement.

‘Wide and transparent conversation’

Before potentially bringing such a massive project here, Austin Mayor Steve Adler said the city would need to weigh the potential costs and benefits. Austin has been reviewing its economic development process and how it gives incentives to large corporations. City officials in October said the Amazon proposal did not include any financial incentives from Austin.

“There would not and could not be a commitment from the city to do anything with any of these economic development conversations without first coming to the community for a pretty wide and transparent conversation,” Adler said Thursday. “This is a desirable city for companies to come because it’s beautiful, it has lots of talent and it’s a place where people who work for companies want to live. So when we have conversations on economic development, there will have to be conversations that deal both with what is special and desirable in this city, but also what our challenges are and how we can best meet those challenges.”

In a letter to Amazon in October, Adler wrote that the online retailer and Austin could help each other with issues such as mobility and affordability if Amazon picked Austin as the site for HQ2.

Neither Austin officials nor the chamber have publicly released the proposal’s details, but the American-Statesman in October reported that the bid included 40 to 50 land sites throughout Central Texas, including a 100-acre tract in the city of Kyle along with $242 million in incentives, as well as roughly 400 acres in the Buda area. Both cities are south of Austin, in Hays County.

Potential shortfalls

For all of Austin’s positive attributes, the city has its share of potential shortfalls, including few mass transit options, gridlocked highways and a limited number of international flights at Austin-Bergstrom International Airport.

Bringing Amazon’s HQ2 to Austin would also raise questions about the project’s impact on Austin’s already swiftly rising cost of living.

“The area has seen an influx of newcomers priced out of expensive coastal markets in recent years,” said Aaron Terrazas, senior economist with real estate data firm Zillow.

In fact, in-state rival Dallas could prove strong competition for Austin, said Albert Niemi, former dean at SMU’s Cox School of Business in Dallas.

The Dallas metro area has plenty of room to grow and a huge international airport, Niemi said, along with a powerful economy already filled with major corporations.

“Austin has a great quality of life, but it is not necessarily a center for Fortune 500 companies,” Niemi said. “When I see Dallas, I see retail giants like J.C. Penney. I see American (Airlines) and Southwest Airlines. I see ExxonMobil. I see telecommunication giants like AT&T. It’s a diversified sector.

“Big companies like Amazon like to be surrounded by other big companies. People also want a place to live where there are professional sports teams and affordable houses. Dallas increasingly has good answers.”

In Houston, the nation’s fourth-largest city, business leaders expressed disappointment at not making Amazon’s HQ2 short list. Houston submitted a bid that reportedly included a four-mile stretch between the city’s downtown and Texas Medical Center.

“I believe this is a wake-up call for Houston,” Greater Houston Partnership CEO Bob Harvey told the Houston Chronicle. “While there has been growing momentum in the innovation space over the last couple of years, this is a clear indication that we have much more work to do as a region to grow our digital economy.”

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Amazon’s HQ2 short list:

  • Atlanta, GA
  • Austin, TX
  • Boston, MA
  • Chicago, IL
  • Columbus, OH
  • Dallas, TX
  • Denver, CO
  • Indianapolis, IN
  • Los Angeles, CA
  • Miami, FL
  • Montgomery County, MD
  • Nashville, TN
  • Newark, NJ
  • New York City, NY
  • Northern Virginia, VA
  • Philadelphia, PA
  • Pittsburgh, PA
  • Raleigh, NC
  • Toronto, ON
  • Washington D.C.

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