What the Amazon HQ2 cities can learn from Seattle

For Seattleites sick of seeing their livable, laid-back city transformed by the tech industry, the chorus of complaints is growing. Newly minted millionaires are building luxury homes around the expensive corners of Puget Sound. Traffic is becoming a nightmare.

And a predicted population boom will create a severe shortage of affordable housing. The city seems headed toward being a place where only the wealthy can afford to own homes.

Yes, the urban sprawl of the Seattle area in the mid-’90s—caused in large part by the then-growing workforces at Microsoft and Boeing, as highlighted in this 1996 New York Times article—were rough. And it followed a boom in the ’80s, when the region’s population rose 22 percent and the number of miles driven by cars quadrupled.

Seattle, home-base to six companies in the Fortune 500, is no stranger to big corporations and big growth. Which makes Amazon’s incredible flourishing, and its sizable office space footprint, that much more impressive.

The retail and technology giant will be in the spotlight for the foreseeable future, as the decision around HQ2—the Crystal City neighborhood of Arlington, Virginia, and Long Island City in Queens, New York, will reportedly split the prize—is finalized. This once-in-a-generation opportunity for a regional economy led to cities throwing themselves, and tax breaks, at the Seattle company.

But despite taking bids for what will be its second home, the company is far from stopping its growth spurt in Seattle. With total company spending on real estate reaching nearly $4 billion, the company now occupies or will occupy more than 13 million square feet of office space spread across 45 buildings, according to BuildZoom research, the largest footprint by both raw area and percentage of any single company in any single city. Between 2014 and 2017, Amazon went from occupying 9 percent of the city’s prime office space to 19 percent.

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“Just the sheer amount of space they take up is unprecedented,” says Brad Hinthorne, managing principal at the Seattle office of Perkins + Will, an architecture and design firm. “Often, an anchor tenant will take up a few floors of a building. Amazon comes in and says, ‘I’ll take this and that building, build a few of my own, and then take up a few city blocks.’” Amazon’s growth has, according to many analysts, priced itself out of town.

As the company’s rise over the last decade has fueled exceptional economic and real estate growth, it’s also increased housing costs, driven up rents for small businesses, and led to long-term transportation challenges and local angst (Amazon declined to comment on the record for this story). Between 2010 and 2016, for example, per company estimates, Amazon spending added $38 billion to the city’s economy, with every dollar invested adding $1.40 more to the city’s overall economy.

In what reads like an Arrested Development joke, a pet project of company founder and CEO Jeff Bezos to hand out free bananas to Seattle residents became so big earlier this year that it, only somewhat humorously, was called out for disrupting the local produce market.

As planners and local leaders across the nation look at each other and the proposals they feel they’re competing against, it might be useful to take a long look at Seattle, and how the city has and hasn’t adjusted to Amazon-fueled prosperity. With the company’s forthcoming HQ2 expected to bring $5 billion in investments and upward of 50,000 workers, it pays to plan far ahead.

“When an employer commits to that much space downtown, and all the peripheral things that come along to all that kind of density, it drives the need for housing and hotels and transit. It drives everything,” says Hinthorne. “But I’d much rather have that problem than the problems many other cities are wrestling with today.”

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Amazon’s unprecedented growth spree

Amazon’s success has made it a much different corporate entity, and citizen, than it was when it was founded in 1994 in a garage in nearby Bellevue (Jeff Bezos set up an oversized mailbox in front of the home he rented for all the book catalogs he’d receive).

The company expanded haphazardly into assorted office buildings in downtown Seattle as it grew during the first dot-com boom (and bust), but at nowhere near its current rate of expansion.

According to Matthew Gardner, chief economist for Seattle-based Windermere Real Estate, if you added all of Amazon’s forthcoming office projects under discussion or permitting to what it currently occupies, it would total 12.8 million square feet by 2022. That’s an increase of roughly 50 percent more office space over time, meaning the current workforce of 45,000 might grow by more than 20,000.

According to Rob Johnson, a member of both the city council and the Puget Sound Regional Council, an area planning group, Seattle is currently growing faster than at any point in its history, having added 100,000 residents in the last 10 years (mostly since 2013). There’s been significant growth in the hotel, retail, and service industries, and the overall unemployment rate, 3.0 percent in May, was below the national average. But the flip side, gentrification, has created a lot of new challenges.

“We try to walk a fine line,” he says.

Whatever feelings locals have about Amazon, it’s clear the city has changed. The money and growth have meant more density, and an end to many mom-and-pop shops, says Doug Ressler, an analyst at Yardi, a real estate technology firm.

“Seattle has always prided itself on being a friendly, lifestyle town,” he says. “But that’s going out the window.”

People call it Amazonia

Amazon’s real expansion into downtown Seattle started in 2010, when the company, then numbering 5,000 employees, moved into a million-square-foot facility in South Lake Union. An area that was mostly low-rise industrial, it wasn’t on the radar of many developers; one of the biggest landowners, Vulcan, a firm owned by the late Microsoft co-founder Paul Allen, had tried unsuccessfully to turn it into a large city park (a bond measure to enact the proposal for Seattle Commons was voted down). But that all changed when Amazon moved into the neighborhood.

By 2012, the company had paid Vulcan $1.1 billion for its portfolio of property, says Gardner, and began building offices and occupying a significant amount of space from leaseholders. What an Amazon exec once called “essentially a sea of parking lots” became a booming commercial district with restaurants and nightlife. Some even nickname the area Amazonia.

“South Lake Union exists as it does today because of Amazon—that’s just a fact,” says Jordan Selig, managing director of Martin Selig Real Estate, which has the company as a tenant at its building on Elliott Avenue West. “The majority of the office and residential buildings are occupied by Amazon’s employees.”

When Vulcan and Amazon, whose expansion was steered by John Schoettler, current global vice president of global real estate and facilities, began working together, according to the Puget Sound Business Journal, the company started to move fast. Schoettler told the paper they’d negotiate leases in the morning and meet with architects at night.

Five years later, Amazon, which has worked with numerous players in the city’s real estate and construction world, including Clise Properties, McKinstry, and Seneca Group, grew to encompass 9 million square feet of office space in South Lake Union alone.

It’s also building a trio of futuristic biospheres in Denny Triangle, adjacent to South Lake Union, and earlier this month, the company bought out the entire Rainier Tower, a 58-story skyscraper under construction downtown. And the tech boom has brought in other big players to the neighborhood; both Google and Facebook are expected to soon lease 1 million square feet of office space each.

According to the most recent Office Market Snapshot from Green Street Advisors, a real estate analytics firm, there’s risk in Seattle’s dependence on just a handful of tech clients (demand from Microsoft is also forecast to grow considerably). But Seattle is still expected to grow above the major market average for the next five years, fueled by strong income growth and a seemingly bottomless desire for high-end office space.

“You expect markets to expand and contract, it’s a normal part of the cycle,” says Gardner. “What we’ve seen is a skew to Amazon. In a certain quarter, we could have given square footage back to the market. But because of Amazon’s growth, it makes the market look better than it is. If you take Amazon out of the equation, the picture can look somewhat different.”

Growing pains

According to Gardner, the city responded to Amazon’s expansion with a “whiplash mentality.” Although it is already severely limited space-wise due to its geography—constrained by both Puget Sound, Lake Washington, and the Cascade Mountains—the city hasn’t fully addressed the infrastructure challenges of growth. Even the 2016 passage of Proposition 1, or Sound Transit 3, a $54 billion bond measure to fund mass transit expansion, won’t catch up, he says.

“There’s space for Amazon to expand in Seattle, but where are the workers going to live?” he says. “Consider that 20 percent of Amazon workers live within the same ZIP code as their office, and 15 percent walk to work. That’s driven lots of demand to nearby apartments.”

It’s also driven a lot of money just about everywhere. Retail sales in Seattle grew 19 percent between 2010 and 2015. And of course, so did real estate. Home prices have risen 47 percent since 2007, hitting an average of $668,000.

“A lot of other cities and regions would be glad for the kind of economic growth that we’ve seen,” says Johnson. “The tax revenues have built up our budget and allowed us to afford capital projects.”

Johnson also points out the downsides: an increase in homelessness; less of a chance for the middle and working class to live close to where they work; the impact on small businesses, housing, and rent. Johnson, echoing many critics, feels the city was a little slow to react. In 2014 and 2015, the Seattle region started seeing sharp year-over-year population growth in both the city and region, and sharp rises in home prices, which led to today’s supply crunch. That’s when the city started doing a lot of the policy development they’re now implementing, he says.

In a perfect world, according to Johnson, the city would have accelerated the process as soon as they saw that data. Seattle now has a Mandatory Housing Affordability Program (MHA) with the aim of creating 6,000 new units of restricted-income housing in eight years, says Johnson, which is positive, but seems unlikely to meet the challenge of Amazon’s forecasted growth.

“It’s a challenge,” he says, “but we’re working through the process, which will lead to good policies.”

Amazon has also caught up to its expanded role in many ways. The company plans to fund a homeless shelter that will be incorporated into one of its buildings; donated $30 million dollars to support homeless families, STEM education, and job training programs in Seattle last year; supports a local culinary training and apprenticeship program; and purchased and funded the operations of a fourth Seattle Streetcar.

Schoettler has said the company strives to be a good neighbor. With Amazon looking to make an immediate splash in another city with the opening of HQ2, and the press likely to focus on the outcome of this expansion, it might do the company well to carry those neighborly intentions to its new home.

The company’s huge presence showed itself during the city’s debate earlier this year over a head tax, which would levy a per-employee tax on large companies to fund efforts to battle homelessness. Amazon’s antipathy towards what the company considered a “tax on jobs,” and threats to pause construction over the measure, demonstrated its considerable clout. After initially passing the measure, the city council repealed it in June.

Many in Seattle caution whomever is picked to think long-term about their newest neighbor, and the tens of thousands of employees who will likely come to town. Gardner says housing affordability and apartments should be the first and most important focus, since rents are sure to go up.

Selig says to make sure the city is ready for an influx of people, and not just the obvious infrastructure issues like traffic mitigation and public transit; everything that would concern adding the equivalent of a small city’s worth of people should be factored in, including schools, daycare, urban green spaces, and medical facilities.

Johnson says the city’s adoption of a higher minimum wage was a big boost, especially to those in the service industry. He also says cities should focus on creating more affordable-housing units to reduce spikes in rent—there’s a correlation between year-over-year increases and increased risk for homelessness—and really think about development strategies that work alongside an organization as large as Amazon.

“Work together on land use, transportation, and infrastructure,” he says.

Ressler agrees that proper infrastructure planning, and laying down literal foundations, is important. But growth, as well as the payoff from a new corporate headquarters, can take time.

“Don’t give away too much too quick,” he says. “That’s what I feel like Seattle did.”