Amazon’s Lesson

Last Fall when Amazon initiated its food fight among North American metros for its “second headquarters,” I predicted in this space that the Washington DC area would be the winner. Jeff Bezos and company would pick a 24-hour city in the eastern half of the country that would culturally appeal to a millennial work force wanting the opportunities and amenities of a bright-lights, big city environment. The location would need to fit a more progressive consciousness in keeping with the current Seattle home base, a deep blue mecca. It would be a gateway city at a transportation nexus with internationally connected airports in proximity to interstates and train lines linked into key regions reaching down to the south and into the Midwest. And it would be a place close to a cloud computing networking intersection. The area around the nation’s capital fit the bill. It didn’t hurt that Bezos owns the Washington Post and would want to make a statement in the nation’s political power center.

So the DC area has won the prize or at least half of it. New York is the other winner. The Apple fits my parameters on all counts too—gateway city, the nation’s number one draw for young on-the-make talent, and a progressive bastion. I put New York behind Washington primarily because even a big company like Amazon moving into the area wouldn’t make the same impact that it would elsewhere. It would be just another big company in a city full of them.

And so what’s the take away? The trend has been clear for the past generation. Our major U.S. gateways—the 24-hour cities which draw the smartest people because of their convenience (mass transit, walkable core residential neighborhoods), and cultural and entertainment amenities—are the places where our nation’s business enterprises want to be. Outside of Chicago, these mega urban centers are on the coasts and they are where finance, entertainment, tech and biotech have been concentrating for decades anyway.

Among the other 24-hour cities, San Francisco and Los Angeles weren’t in the Amazon race because they are West Coast and Amazon needed geographical balance. Chicago couldn’t cut it because it is too far West and maybe just a touch too stodgy for the tech industry. Boston is stuck too far north and east, its location is not central enough, but it certainly has the brainpower attributes from the impressive Harvard-MIT nexus.

As for the old Sunbelt zone which has no true 24-hour cities (total car towns, limited core residential areas)—Austin may be progressive, but it’s stuck in the middle of a state that would reelect Ted Cruz. Same with Houston and Dallas, which voted blue by the way. Atlanta ditto—replace Cruz with Brian Kemp. Nashville is anchored by the same red state cultural baggage and is off the gateway grid. Do progressive, smart, young tech talent want to end up in these places? Some millennial brainpower types maybe, but not most.

For real estate investors the message is clear. The 24-hour places remain the top investment choices. Just follow the money to them—that’s where businesses, top talent, and tourists want to be. Various flavor-of-day surveys can point to smaller hot cities–which might be cheaper now on a price per pound basis or where it is easier to develop–as current favored investment locations.

But the lesson from Amazon is clear—the gateways are where you want to be and will want to be, if you can afford it.

The views expressed here are the author’s own and not that of ALM’s Real Estate Media.