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Amazon says no to New York

15 February 2019 Tom Jackson

After several days of reports that Amazon was reconsidering its decision to build one of its two new corporate headquarters in New York City, on 14 February the company announced that it had decided to drop those plans. From mid-November, when Amazon announced that it would split its planned "HQ2" between the Long Island City neighborhood of Queens, New York and the Crystal City area of Northern Virginia, local lawmakers, union representatives, and community activists in New York City began to push back against the plans.

Amazon's well-publicized search for a location for its second headquarters-including the construction of a $5-billion corporate campus and the hiring of at least 50,000 workers at average annual salaries of at least $150,000-triggered sales pitches and offers of economic incentives from over 200 metro areas. The search was narrowed to 20 semifinalists, then culminated with the decision to split the prize between two of the highest-profile candidates. Each had offered generous incentive packages, but reportedly not the most lucrative. New York City is a world hub for finance and media, while Washington, DC, is the seat of US government, which made both obvious candidates despite their relatively high costs of living and doing business. Beyond that, both areas offer abundant supplies of the type of workers the company will be seeking to hire, especially those fluent in the development of technology. Amazon noted the availability of talent as a key factor in its decision.

Potential negative impacts raised concerns

Throughout the search, concerns were raised about the potential disruption to existing neighborhoods by the influx of highly paid workers into the "winning" communities, especially in terms of higher costs of living (especially for housing) and increased traffic congestion. Amazon's opposition to the unionization of its workers also was a concern in some areas. The offer of a potential $3-billion worth of tax breaks and other economic development incentives from the city and state of New York was ultimately the focal point of the protests, though, and provided the lever to prevent the plan from being implemented. New York Governor Cuomo and New York City Mayor de Blasio had led the pursuit of the company to the city, but the proposed deal had not received all necessary approvals at the state and local levels. The last straw for Amazon might have been the recent nomination of a state senator to a state board that would have positioned him to block the development plan.

NYC's loss will be others' gains

The apparent end of the deal eliminates a potential 25,000 new jobs for New York City, with the potential for at least $3.75 billion in annual wages. The December announcement of a major expansion by Google, which currently employs more than 7,000 in the city, should provide some consolation to New Yorkers who were excited about the potential for new tech jobs, though. Google is expanding its capacity in Chelsea Market and adding new space in the West Village to accommodate up to 12,000 new workers by 2022. Google reportedly did not seek public funding for its plans.

In its announcement, Amazon stated that it will not reopen its search for an alternative location. The company's new location in Crystal City, Virginia, has not faced the same type of local resistance and is proceeding as planned, as are Amazon's plans for a new Center of Excellence in Nashville, which will employ 5,000. Amazon noted that these two sites could also absorb some of the planned 25,000 new jobs slated for New York City, along with its 17 existing corporate offices in the United States and Canada.

Our December forecasts had been adjusted higher in New York, Virginia, and Tennessee to reflect Amazon's initial announcement. Our state forecast for New York will be readjusted to reflect the company's recent announcement.

Posted 15 February 2019 by Tom Jackson, Principal Economist - US Regional Economic Service, IHS Markit

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