Amazon’s Site Selection Process May Forever Change the Practices of Commercial Real Estate Professionals

Amazon’s Site Selection Process May Forever Change the Practices of Commercial Real Estate Professionals

Amazon’s HQ2 site selection certainly is set to impact one North American city. But the process Amazon started with the HQ2 RFP (request for proposal) could well have more far-reaching implications than a single city. Amazon’s site selection process may forever change the practices of commercial real estate professionals.

In a recent report, “Amazon HQ2: A Reset Button for Site Selection,” CCIM Institute and Alabama Center for Real Estate discussed the evolution of corporate site selection spurred by the HQ2 RFP, as well as the impact on commercial real estate professionals and the analytic adjustments they will need to make. The criteria Amazon laid out will likely be adopted by other large corporations and tech companies, shifting primary focus away from real estate value and availability toward workforce and business culture compatibility.

Amazon’s HQ2 Criteria

According to the report, skilled millennials are a top priority in the HQ2 evaluation. They are the group to foster continued growth for their employers; availability of that workforce is expected to heavily weight the HQ2 decision. The report suggests Amazon should consider the “Golden Triangle,” mapped with the Great Lakes to the north, Texas to the southwest, and Georgia, South Carolina, and Florida to the southeast. The Golden Triangle boasts a skilled workforce and yields about half of the U.S. GDP. It is also a vital region to U.S. supply chain. That is hard to ignore with the majority of Amazon’s customers residing east of the Rocky Mountains.

Additional considerations for HQ2 site selection were highlighted in the report:

– Capital and operating costs
– Proximity to an international airport
– Sustainability efforts
– Education centers
– Affordability and quality of life
– Populations of more than one million
– Stable and business-friendly environment
– Ability to attract and retain strong technical talent
– Communities that think big
– Cultural community fit

Cities unable to demonstrate innovation and affordable housing are not likely to have a cultural fit with Amazon.

The HQ2 RFP criteria were based on the grounds of customer obsession instead of competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.

Experts Evolve with the Site Selection Process

Commercial professionals will need a deep understanding of economic principles due to the evolving data-points large companies will likely adopt from Amazon’s site selection process. Occupancy costs v. labor costs emerged as a theme in the HQ2 RFP. Amazon will weigh the ability of the final 20 cities to cultivate productivity. Gary Ralston, CCIM, managing partner of Coldwell Banker Commercial Saunders Ralston Dantzler Realty LLC and CI 102 instructor, shared in the report, “If a company can increase labor productivity, then occupancy cost can be greatly mitigated. A 10-percent gain in productivity might offset the rent.”

Since the HQ2 RFP, commercial site selection experts have studied the multiplier effect that stems from demand overflow to businesses like eateries and lodging. Mark Cypert, CCIM of Middleton Partners in Dallas and also a CCIM instructor, shared in the report that each job Amazon brings to the HQ2 city could foster as many as eight non-Amazon jobs.

Commercial real estate professionals with a jump on forecasting will be in a good place, whether they are working in the HQ2 city or another that a large tech company decides to call home. When you have a handle on the local market and expected demand swell, be it rental homes, office buildings, or other residual needs, you’ll be ready to address the changing landscape of commercial site selection.

Markets to Watch

K.C. Conway, CCIM Institute Chief Economist and author of the report, shared markets – regardless of the final decision for HQ2 – he deems noteworthy for consideration in corporate site selection:

1. Pittsburgh
2. Columbus, OH
3. Atlanta
4. Northern Virginia
5. Orlando
6. Greenville/ Spartanburg, SC
7. Charlotte, NC
8. Dallas

Conway noted, “These are just a few of the centers of growth east of the Rocky Mountains that are today’s Los Angeles, San Francisco, San Diego, and Seattle. But growing companies shouldn’t overlook the plethora of secondary MSAs in the East that are burgeoning economic powers in the auto, aerospace, e-commerce, healthcare, trade/ports, and telecom sectors…”

Report Wrap Up

While some implications are still unclear surrounding Amazon’s preferences in the site selection process and its success in choosing the HQ2 city, the large supporting role that commercial real estate professionals have in the progressing process of corporate evaluation is palpable.

Cypert rounded out the report stating, “Commercial real estate professionals must think creatively to identify potential locations that offer a corporate user what they need to succeed.”

Read the full report.

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