Experts Are Skeptical About How Much The HQ2 Rejection Will Hurt New York
When Amazon pulled out of New York City earlier this month, many in the business community went into a panic spiral — one even said it was the "worst day for NYC since 9/11." With more than a week to reflect on the stunning decision, many are now taking a less alarmist tone.
Amazon's pullback was met with a mix of joy and fury. Opponents of the deal, most of whom took exception to the tax incentives, saw it as proof that a community could take on a corporate bully and win. Supporters said Amazon’s decision to leave has done irrevocable damage to New York’s ability to lure businesses and cost the city tens of billions in potential tax revenue.
But the tech giant’s Big Apple flameout — spectacular though it was — may not cut as deep or as painfully as many initially believed.
Commercial real estate players argued the city still has the talent businesses need, the tech sector is growing rapidly, and the fundamentals driving the commercial real estate market remain.
“I don’t think [Amazon] was a game changer. It would have put a feather in New York City’s cap — but only because so many other cities were competing to be the central location,” Savills Studley Chief Economist Heidi Learner told Bisnow. “It would have changed things for Long Island City and Queens in general, but I do think the attention was largely focused on that headline win.”
Certainly, Amazon's big initial announcement followed more than a year of breathless coverage of the search, as municipalities fell over themselves to lure the company. When New York City scored Amazon, champions of the deal pointed to the influx of jobs it would bring, starting with 700 employees this year and expanding to 25,000 by 2028.
But job growth has been steadily growing for years in the city, even without Amazon. Between 2000 and 2016, the number of jobs jumped by nearly 17%, according to the NYU Furman Center, which looked at job growth impact on the city’s housing crisis.
Learner pointed out that 25,000 jobs over a decade would have had a positive impact, but only an incremental one. In 2016 and 2017, the five boroughs added 140,000 jobs combined, Learner said, citing Bureau of Labor Statistics data. Even at a slower pace, the addition of 25,000 jobs over 10 years would have done little to move the needle citywide.
“There’s nothing to say another tech company won’t try to come in over time and do something similar,” Learner said.
While the Amazon deal went south, she said there are still plenty of example of public and private real estate partnerships working well in the city, like Hudson Yards and Cornell Tech.
“New York is a thriving tech hub and this isn’t going to change that … [But] hopefully this been a teaching moment,” Partnership for New York City President and CEO Kathryn Wylde said. “We can’t take for granted that everybody’s going to want to be here."
Members of the real estate community in Long Island City who welcomed Amazon had scrambled to try and shift the public image of the deal in the days leading up to its implosion, but the tax incentive deal remained particularly unpalatable to much of the public.
Gov. Andrew Cuomo said it was the largest economics development initiative that has ever been done by the city or the state, with a revenue to incentive ratio of 9:1.
“I think it would have been a real benefit, but fortunately New York City has a very vibrant economy with a growing tech center,” said David Friedfel, the director of state studies at the Citizens Budget Commission, a nonprofit think tank that analyzes New York state and city budgets.
The gains were substantial, he said, while pointing out that it was expected to unfold over the next two decades. It is hard to predict how any company, particularly a less-than-30-year-old tech company, may morph and change in that time.
There are notable examples of the state offering big incentives that have backfired. In Buffalo, for example, the state spent $750M building a factory for Tesla, which currently only employs around 700 people — though the company will face a $41M fine if the job count does not jump to 1,460 by April of next year.
The collapse of the deal, Friedfel said, should force government to re-evaluate how negotiations work, and approach them with greater transparency.
“It highlighted some of the weaknesses in the state’s approach in economic development,” he said. "Some of these programs should be adjusted, based on what we have learned."
Aside from the friction around job numbers and incentive payoffs — and what a loss those may or may not have been — commercial real estate players believe Amazon’s selection of New York City would have reshaped the city as a legitimate tech powerhouse.
“New York could definitely use a big IT corporation presence,” said Jeanette Wing, the Avanessians Director of the Data Science Institute and professor of computer science at Columbia University, though she added Amazon itself is dealing with a missed opportunity. “We will continue to pump out talent, many will stay in New York … That’s what Amazon is missing out on.”
The loss, RXR Realty Executive Vice President and former Bloomberg administration official Seth Pinsky said, will mostly be the chance to rapidly push the tech forward. He still believes the industry will grow, but Amazon could "have supercharged it."
“The good news side of this is all of the things that attracted Amazon in the first place remain,” Pinsky said.
There is no doubting tech companies have grown significantly in the city. Amazon now has a footprint of 871K SF in multiple locations, according to Colliers International data. It said in its New York City breakup announcement that it will keep expanding.
Facebook has more than 1M SF here, and Spotify announced in 2017 it would set up its United States headquarters in more than 400K SF at 4 World Trade Center. Apple is reportedly close to inking a 60K SF at 55 Hudson Yards.
Meanwhile, Google has announced it is planning an enormous campus in Hudson Square, occupying 1.7M SF across Oxford Properties' St. John's Terminal and 315 and 345 Hudson St.
The company’s footprint is now 2.6M SF, per Colliers. Overall, Manhattan had the best office leasing year in nearly two decades as the result of several major deals and vast flexible office space provider expansion.
Losing HQ2 is "not going to have significant long-term effects,” Sage Realty Corp. CEO Jonathan Kaufman Iger said. "I think Amazon was a very unique situation. This is not going to hinder Google’s growth or other young, fast-growing public or private companies … I don’t think anyone should be scared of that.”
UCLA professor of real estate and accounting Eric Sussman said New York and California were already famous as difficult places to do business, long before Amazon packed its bags.
“New York has a tremendous amount to offer companies," he said. "It’s the financial center of the universe."
Still, others argued Amazon’s decision to leave has sent out a message to companies around the world that setting up shop in New York can be dicey.
“It will be very hard to measure what could have been,” RXR’s Pinsky said. “When you start taking growth for granted, that’s a risk.”