Amazon’s HQ2 Decision and What it Means to Philadelphia

Written by Gary Lozoff, Tactix Real Estate, LLC

SPOILER ALERT:  Amazon recently and finally announced the winner(s) of its coveted new headquarters competition – described in the industry as HQ2.

To many observers’ surprise, Amazon did not pick a single winner; Amazon actually picked three winning metro areas.  Amazon will be splitting its new HQ2 requirement between Crystal City, Virginia and Long Island City, New York.

While representatives of the Commonwealth of Virginia and New York State indicated they had offered extremely generous economic incentives to lure the eCommerce titan, Mayor Bill de Blasio of New York City was adamant that no direct economic incentives were offered by the City of New York.  To state a relatively straightforward point — The Big Apple didn’t have to.  What a luxury that is for New York City.  New York City is a globally-compelling brand and industry destination that companies will actually pay extra to locate in.

Financial services firms, media companies, fashion houses, advertising firms and corporate law firms that aspire to scale must have a substantial presence in New York City. That is where the competition is, that is where the clients, prospects and counterparties are, and that is where the talent is.

It is no coincidence the two winning regions represent the top two locations for tech workers in the US.  Tech workers are more likely to live in New York City or the DC metro Beltway than almost anywhere else.  So, in the end, Amazon went where the experts are.  And, it apparently did not matter that New York City has a confiscatory tax burden or that the cost to comfortably live in metro New York City or Washington, DC is among the highest in the country.

Also, in case you missed it, this real estate approach by Amazon didn’t end with the company’s new headquarters decision.

Amazon also just announced that it would be creating 5,000 new jobs in Nashville, Tennessee where it will base its package delivery, transportation and supply-chain services group.  Tennessee, which already is home to Federal Express, is a state that knows a bit about how to deliver something “when it absolutely, positively needs to be there overnight.”

New York City, Northern Virginia, and Nashville attracted Amazon because their respective work forces have the most expertise and formal educational training in the areas Amazon needs.  And, of course, these metro areas are not alone in being industry destinations.

Los Angeles is the king of the entertainment industry; Detroit owns the automobile business; Washington, DC is where you go to serve the defense industry or if your business is highly regulated by the Federal government; Boston is a leader in the financial services and tech realms; and San Francisco and Seattle also are  headquarters destinations for tech companies.  Chicago is a global transportation and banking hub.  Miami is the US gateway to business opportunities connecting Central and South America.

If a compelling reason for businesses to locate in in Philadelphia is created and sustained, businesses will bear the extra tax and regulatory burden to be here.  So, what does the outcome of Amazon’s H2Q civic cage match mean for Philadelphia?  HQ2 is the ultimate challenge for Philadelphia’s civic place in a new kind of competition.  To build on the obvious successes of business and civic leadership over the last 30 years in transforming Philadelphia as a residential and touristic destination, we need to consider whether and how to commit to make Philadelphia once again a destination for at least a few major industries.  What CEO (including Brian Roberts of Comcast) wakes up right now and says, “You know, we really need to be in Philadelphia because we do X?”  What university or college undergrad or graduate student is saying to his or her parents, “Sorry mom and dad, I know you wanted me to live nearby but, if I want to do Y, I need to be in Philadelphia?”  None – I submit.

We need to change that story.  Where do we begin?

First, let’s take stock of, and consolidate on, our regional industry and academic strengths. Where do we have a leg up on the competition in an area that has long-term potential?  Maybe it’s gene therapy, medical devices, life sciences, digital and other technology.  Maybe with Comcast and now Entercom headquarters consolidating here, Philadelphia can become a top-tier destination for entertainment/media companies.  Perhaps it is something else.

Unfortunately, we are in greater need of a driver that differs from most other continental US cities because of Philadelphia’s close proximity to New York and Washington, DC.  Unlike Chicago, Dallas, Houston, Atlanta, Denver, Phoenix or Miami, Philadelphia cannot rely on physical separation to drive substantial business growth.  In fact, while we always tout our proximity to New York and DC as strengths for Philadelphia, that geographic reality may very well be what has hurt us the most.  Why come to Philadelphia if your business can just locate in one (or both) of those compelling destination metropolitan areas?  HQ2 ended with Amazon unsurprisingly checking both of those locational boxes.

Second, let’s be candid about, and create a civic action plan to tackle, the formal educational attainment gap that exists between metropolitan Philadelphia and other great cities.  As the president of Drexel University, John Fry, and others eloquently have written since the HQ2 decision was announced, this achievement gap is substantial.  And, that objective gap challenges each of us who cares about building Philadelphia as leading business destination in the 21st century how we will contribute to radically improving the knowledge and skills base of our region’s population such that the talent here is ample to nurture substantial new business enterprises in manufacturing and the tech, media, and pharma industries here.

It’s time for Philadelphia to stake its claim and become known now — for something that builds upon cheesesteaks, spirited professional sports fans, Rocky, The Sound of Philadelphia, Founding Fathers who left us 250 + years ago, and our history as the first Capitol of the US.  It is well past the time to put our heads together and devise a plan for new civic excellence.  If we make and execute that plan, businesses will come.  And when they do, they will pay a premium to be here.

To learn more, please contact
Gary Lozoff
Tactix Real Estate, LLC
100 North 18th Street, Suite 520
Philadelphia, PA 19103
United States of America
(267) 989-8901

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