A standoff between Amazon and the city of Seattle ended this week when the City Council passed a pared-down version of the so-called head tax on big businesses. As the smoke cleared, the company issued a strong statement, declaring that the decision “forces us to question our growth here.”
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Amazon’s proclamation is “a substantial shot across the bow to City Hall,” said Matthew Gardner, chief economist at Seattle real estate brokerage Windermere Real Estate.
But what it actually means for Amazon’s future in its hometown is an open question.
The tough talk could be nothing but bluster, and Amazon could continue to expand at a rapid clip in Seattle. Or not.
A major shift in Amazon’s thinking could send thousands of jobs to other cities eager for the kind of growth the company brought to Seattle, and cause the company to put even more focus on its planned second headquarters. Such a move would create ripple effects in the real estate market and damage the city’s status as a world-class tech hub capable of recruiting the best and brightest, experts say.
However, in other ways, an Amazon slowdown might curb the staggering growth that has created tension throughout the city, some observers say. It also could relieve pressure on other companies vying for new office space and top employees, and help people who are struggling to find affordable housing in a sea of well-paid Amazonians.
“If Amazon were to pull back the reins a little bit here in town, I don’t necessarily think that’s a huge negative for the health of the market, especially if you are another tenant out there trying to negotiate a deal,” said Tony Ford, executive vice president at real estate brokerage Colliers International’s Seattle office.
Seattle is a hyper-competitive market for hiring tech workers. In addition to Amazon, the Seattle area is home to tech giants like Microsoft, Zillow, Redfin, T-Mobile, Tableau Software and countless others. But there’s also Facebook, Google, Apple and other out-of-town companies competing with homegrown tech giants and startups.
For years, Amazon gobbled up talent from nearby tech giants, the University of Washington and other institutions and brought people in from out of town. If Amazon pumps the brakes in Seattle, Ford says other tech companies will be better suited to compete for top talent.
But there’s another potential twist.
Albert Squiers, director of recruiting for Fuel Talent’s technology practice, said Amazon’s demand for tech workers helps to create the huge pipeline of talent that other companies subsequently tap. The head tax — and a potential Amazon slowdown — would make companies and workers think twice about making the move to Seattle.
“Our engineering ecosystem will take a massive hit,” said Squiers, referencing Amazon’s penchant for re-locating tech workers to Seattle. “A large portion of tech founders are previous Amazonians who gained valuable experience in new product development, scaling systems and building high-performing teams.”
Amazon’s stake in Seattle
RELATED: GeekWire database tracks Amazon’s Seattle footprint
To understand what’s at stake, it helps to look at the tech giant’s size in Seattle. The retail and cloud computing giant is the dominant force in the regional office market, dating back to 2007, when it announced plans for an 11-building, 1.7-million-square-foot campus in the South Lake Union neighborhood. Its presence juiced the local real estate and construction markets for years, earning Seattle the title as the nation’s “crane capital” and contributing thousands of new jobs to the region’s economic boom.
On the flip side, Amazon is a scapegoat for many of Seattle’s key issues: traffic, housing affordability, homelessness and more. This dynamic pushed Amazon to the forefront of City Hall politics, making it the face of the fierce debate over the head tax.
In its HQ2 announcement last year, Amazon said it occupied 8.1 million square feet of office space in Seattle at the time, spread across 33 buildings, employing more than 40,000 people. GeekWire research found last year that Amazon’s footprint is nearing 13.5 million square feet, encompassing owned property as well as future commitments
Between its two main campus in the South Lake Union and Denny Triangle neighborhoods, Amazon owns about half of its real estate in the city. If Amazon were to pull back on Seattle growth, shedding some of the many office buildings it leased over the years is a likely first step.
The company bucked trends by scooping up gobs of office space in the years following the recession, leasing about 1.2 million square feet during that time frame, roughly equivalent to about 6,000 jobs. Those deals are set to expire between 2019 and 2021, according to real estate sources with knowledge of the lease terms.
Amazon has been on a leasing spree over the last few years, and the company has leased — but not yet occupied — about 1.5 million square feet of space, according to sources. That includes two of its biggest deals in Seattle, the massive Rainier Square and the office space above the downtown Macy’s. Amazon could follow through on what it threatened to do with Rainier Square and put some of that space back on the market rather than occupying it.
Amazon dumping a bunch of office space on the market would push vacancies up and office rents down.
Seattle’s office market is pretty tight right now, with a vacancy rate of about 8.6 percent, according to Colliers International. A rate of about 10 percent is considered balanced. Anything much lower favors landlords, and when the rate creeps up, tenants get the advantage. An Amazon slowdown would be tough on building owners counting on top-shelf rents, but could be a boon for other companies that have been shut out of new office space for years by Amazon’s insatiable appetite for growth.
“Amazon’s put a lot of pressure on the market, gobbling up all the vacant space, all the big blocks,” Ford said.
Impact on housing
In the housing market, developers have been building thousands of apartments per year in Seattle, trying to keep up with the demand from residents new and old, many of whom have come to the city to work for big tech companies like Amazon. If Amazon’s growth slows, so does that appetite for apartments, Gardner said. Stagnating or even declining rents would be welcome news to tenants and a blow for landlords.
One area that won’t see much change, Gardner says, is Seattle’s white-hot for-sale housing market. Seattle’s housing market has been the hottest in the nation for 18 months straight, and it is likely to stay that way whether Amazon freezes its Seattle expansion or not. There remains very few available homes for sale, and zoning codes restricting the amount of new housing that can be built aren’t going anywhere.
If Amazon does scale back in Seattle, it has plenty of other places to look. If it wants to stay in the area but get out of the city limits to duck the head tax, neighboring cities like Bellevue will be waiting with open arms. Amazon recently established a presence there, and is on the hunt for more space.
Amazon also boasts a cadre of engineering centers and offices all over the world where it could redistribute growth, and it recently announced expansion plans in Vancouver, B.C. and Boston. Earlier this month, Amazon announced plans to hire 2,000 workers in Boston and late last month announced a new 416,000 square foot office in Vancouver B.C. with room for 3,000 people working in areas such as cloud computing and machine learning.
There’s also HQ2. Twenty cities are current vying for Amazon’s second headquarters, which is expected to be announced later this year.
Amazon, which has said that some employees will have the choice to work in either HQ1 or HQ2, could call an audible and make its new location more than a “co-equal” location to its Seattle headquarters. As Amazon considers where to put HQ2, Gardner said, the company could ultimately decide to “make that headquarters even bigger than it would be normally … to the detriment of their presence in Seattle.”