Can Austin win Amazon’s HQ2 — and could city handle impact if it did?

Posted September 29th, 2017

Ever since Amazon suddenly announced Sept. 7 that it will build a second company headquarters, just about everyone has weighed in on Austin’s potential of landing the $5 billion project Amazon is calling “HQ2.”

It’s been for good reason.

Area economic experts say Austin — with its tech-heavy culture, flagship University of Texas campus and young labor force — has a fighting chance of landing the facility.

The question, of course, is what Austin officials are doing to encourage Amazon to look past the metro area’s shortfalls — and whether landing HQ2 would even be good for the city.

“It presents a pretty incredible opportunity,” Mayor Steve Adler said of HQ2. “It has the potential, or the promise, to help us deliver on some significant community benefits, and that’s why I think it’s really important for the city to engage.”

When Amazon announced plans for HQ2, it said the facility would employ up to 50,000 people with an average salary of more than $100,000. The e-commerce giant publicly invited any city in North America to submit a bid.

The news quickly sent governors and city leaders across the U.S. proclaiming that their state or city would best serve HQ2. Economic development officials everywhere began creating proposals to submit before Amazon’s fast-approaching Oct. 19 deadline.

It was not much different in Austin, where officials from the Greater Austin Chamber of Commerce, the city’s economic development department and the mayor’s office have been coordinating to submit a proposal.

Checking the boxes

There are a number of reasons to be optimistic about Austin’s chances.

In a post on its website, the chamber suggested that Amazon’s recent purchase of Austin-based Whole Foods Market would “create synergy” here.

Amazon said it will consider “metropolitan areas with more than 1 million people, a stable and business-friendly environment” and “urban or suburban locations with the potential to attract and retain strong technical talent.” Austin certainly seems to check those boxes.

Beyond that, the metro area boasts a high percentage of young professionals (millennials make up about 25 percent of the city’s population), a lower cost of living than most tech hubs, and the city retains 30 percent of its college graduates, according to labor research and advisory firm Emsi.

Emsi created a talent index based on factors such as total jobs, job growth, concentration of tech jobs and a well-educated labor pool. In that index, Austin ranked third, only behind heavyweight tech hubs San Jose and San Francisco.

In Seattle, where Amazon’s headquarters are located, the demand for tech skills also looks a lot like Austin. Out of the 50 most-listed skills in Amazon’s Seattle job ads for software and IT positions, Emsi reported, Austin had the second-highest occurrence of the top skills, trailing only San Francisco.

“The workforce data is increasingly more important for companies in both labor availability and sustainability, and I think that’s going to be a big factor for Amazon,” said Joshua Wright, who tracks workforce and economic development trends at Emsi. “It’s even more important this time because of the scale Amazon is working on — the ambition to hire 50,000 people.”

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Infrastructure, traffic concerns

Still, Austin’s bid to win Amazon’s HQ2 faces some key challenges.

While the city’s demand for specific high-tech jobs is similar to that of Seattle, the overall tech labor pool here is significantly smaller than such tech hubs as the New York-New Jersey area, Boston and even Dallas. Companies here depend more on outside talent, and that can create issues.

There’s also doubt about whether Austin’s infrastructure could handle 50,000 new residents over time, a number that almost equals the student population at UT. The city’s swift growth has clogged major roads and highways, and its international airport, while growing, doesn’t have nearly the number of flights or routes as larger hubs like Dallas.

Another concern is that Amazon’s army of high-earning workers would raise the cost of living in Austin. The cost of living has reportedly risen sharply in Seattle as Amazon has grown, but it’s unclear how much of the spike is due specifically to Amazon.

“Ultimately, the city should not do anything that brings burdens that are outsized by the opportunity,” Adler said, explaining that the HQ2 effort would open a dialogue among officials to address some of the city’s problems. “I’m not at a place yet where I would say that we shouldn’t engage and discuss the opportunity. It’s a pretty unique opportunity that I think has the potential to achieve community benefits … that we might not achieve or would take us a long time to achieve otherwise.”

Elaine Thompson/Associated PressThe Amazon campus in downtown Seattle. 

HQ2’s initial size will surpass 500,000 square feet, with the facility eventually building out to up to 8 million square feet, a comparable size to Amazon’s Seattle headquarters, which comprises 33 buildings, 40,000-plus employees, and which Amazon said has added $38 billion to the city’s economy since 2010. But where could such a facility be built in Austin?

For starters, it doesn’t make sense for the city to pitch a central location, according to local economist Angelos Angelou, who specializes in economic development and site location consulting. The downtown area doesn’t appear to have the space, and it could have a catastrophic effect on transportation, Angelou said.

Austin’s suburban areas near Interstate 35 or MoPac Boulevard (Loop 1) would be ideal, Angelou added, because they have the land mass to host HQ2, which he expects to be a campus with multiple buildings.

Greater Austin Chamber of Commerce President Michael Rollins said the chamber keeps an updated list of available sites and office space that can accommodate prospective companies, and it would be submitting sites in the region that fit Amazon’s criteria. He declined to provide further details.

Some local commercial real estate brokers who spoke to the American-Statesman said there are few places within Austin’s city limits that could meet Amazon’s needs, but they cited places such as far East Austin along the Texas 130 corridor as possible locations.

“Every community throughout the country that will bid for this has pluses and minuses. It’s’ really up to Amazon what makes sense,” chamber spokesman Mike Berman said. “I don’t know that the (city) has to be perfect today, but … this is a wonderful place with a wonderful creative culture.”

The incentives question

Amazon said the amount of incentives cities and states offer for HQ2 will be a significant factor in the company’s decision.

Incentive packages have become common practice in luring businesses to cities and states. Wisconsin recently approved $3 billion in subsidies that will be given to tech giant Foxconn to build a factory there. Des Moines, Iowa, also recently approved $213 million for Apple to build a $1.3 billion data center there.

Deborah Cannon/American-StatesmanThe lobby of the Amazon offices near the Domain in Austin.

The most Texas has awarded from the Texas Enterprise Fund, according to the governor’s office, is $50 million on two separate occasions: One was in 2005 for Lexicon Pharmaceuticals facilities in College Station and Houston, and the other was from 2004 to 2007 for a Texas Instruments facility in Richardson. The state is now distributing $40 million in incentives to Toyota for a $345 million plant in Plano.

Incentives have been a touchy subject at Austin City Hall lately. Even as Amazon proposes its economy-changing facility, Austin is reviewing its incentives program and how it might scale it back and focus more on the city’s other benefits when making pitches for businesses to come here.

City Council members such as Leslie Pool have gone so far to say that they would not support incentives for Amazon. And recently, council members debated stopping incentive payments to the Domain shopping center, ultimately deciding not to, but then voting to cut $100,000 of the $700,000 budget for Google Fiber’s expedited permitting.

‘A formidable proposal’

While Amazon hasn’t yet given any hints as to what city it might ultimately choose, even having Austin considered among the potential sites is a win for the city, said Angelou, the Austin economist. At the very least, he said, Austin should hope for a place among Amazon’s finalists when the company announces the winner sometime in 2018.

Getting that level of respect from one of the world’s largest companies would further establish Austin as a destination for businesses, Angelou said.

“The risk for Austin is not to be short-listed,” he said. “But that’s a risk we take every single day. We’re not going to win every project. But we have leadership at the Austin chamber of commerce. I’m sure they will put together a formidable proposal that leverages our creative assets."

Staff writers Shonda Novak, Dan Zehr and Bob Sechler contributed to this report