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17 February 2018 00:00:00 AM Breaking News

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What Amazon's HQ2 Shortlist Tells Us About What The Company Is Looking For

Yesterday, Amazon announced the list of finalists for its proposed second headquarters, known as HQ2.  The tech giant narrowed the list from the initial 238 applicants down to 20.

This group includes a number of cities many expected to be included (New York, Boston, Washington, D.C., Dallas, Austin) with some that were surprises (Indianapolis, Columbus, Miami). In my view, Amazon's put out a list of finalists with a blend of "sure things" and surprises to throw speculators off the trail. But here's my take:

Amazon clearly wishes to become established in another region of the country. Los Angeles was the only contender located on the West Coast; other presumed Western contenders, like Phoenix, San Diego or Las Vegas, failed to make the cut. In addition, a full seven finalists are in the Acela Corridor (Boston, New York, Newark, Philadelphia, Washington, D.C., Montgomery County, Md., and Northern Virginia), four are in the Midwest/Rust Belt (Pittsburgh, Columbus, OH, Indianapolis and Chicago), and six are in the South (Raleigh, Atlanta, Miami, Nashville, Dallas and Austin). This selection of finalists suggests that HQ2 will have significant autonomy from Amazon's Seattle location.

There are some surprising finalists and surprising omissions. Columbus and Indianapolis, and to a lesser extent Nashville, stand out as surprises on the short list. Surprising omissions include Charlotte, Minneapolis, Detroit, Baltimore and St. Louis. In my view, this might mean that Amazon's first take took into account economic strength and balance, and workforce access and attraction factors, and put livability characteristics up for review in the next stage. The finalists may just beat out the omitted cities in those areas.

Amazon appears to be looking to be an economic complement to its selected city, not its economic savior. Related to its surprising finalists and omissions, it seems Amazon is resisting the urge to be the singular transformative economic force in its new city. Surprise finalists Columbus, Indianapolis and Nashville (and similarly positioned Raleigh) are each state capitals that have diverse economies and long traditions of attracting well-educated young workers from nearby major universities. Because of these factors, the finalists might be better suited to absorb Amazon than many might assume. That's probably less true of a Detroit, St. Louis or Baltimore, where Amazon would be viewed as an absolute foundation for future growth (I also wonder if Amazon took economic inequality and economic mobility factors into account; that could account for some of the omissions as well).

The livability cut hasn't been done yet. In the request for proposals Amazon released last September, the tech giant appeared to put a premium on cultural fit and quality of life issues that would mimic what it currently enjoys in Seattle: access to an expansive transit system, walkability, urban neighborhoods, proximity to educational institutions, cultural amenities and recreation. But by my estimation, several cities have been included that don't quite meet that standard, or don't meet it relative to others on the list that are known for such factors.  That's part of what fuels the reaction to the inclusion of some cities over others.

The odds of the Washington, D.C., area winning the bid have risen tremendously. Without having reviewed the bids themselves, the D.C. area, with three on the short list (D.C., Montgomery County, Md., and Northern Virginia) has to be considered the frontrunner for HQ2. While this may have more to do with the quality of the individual bids (it's entirely possible that, for example, the D.C. area was able to put generate three exceptional bid packages, while Minneapolis and Charlotte could not generate one), it's well known that the D.C. area has the economy, workforce and amenities and quality of life characteristics to merit very serious consideration.

When I wrote last September about how to property speculate on Amazon's ultimate selection, I argued that 12 cities would be in the mix based on how I interpreted Amazon's criteria. I suggested that Amazon would make a decision based on presumed autonomy from Seattle, its sensitivity to overall costs (both business and housing), and access to talent. Of my initial 12, nine made Amazon's short list (I'm surprised Minneapolis didn't make it, but I did not expect the Bay Area or San Diego to have a realistic shot). And while my guess is as good as anyone's, I see the winner coming from one of these six metro areas:

Atlanta

Boston

Chicago

New York

Philadelphia

Washington, D.C./MoCo/NoVa

However, Austin, Dallas and Denver have the ability to pull off an upset.

We'll certainly find out later this year.

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