By David Howell
It’s official: Amazon is coming. After 14 months of speculation, the odds-on favorite Crystal City was indeed the winner in the HQ2 sweepstakes, but with a twist. Queens, New York will get half of the planned 50,000 jobs that Amazon says it will create over the next 10 to 12 years. And in this case, getting half the loaf may turn out to be better than getting the whole thing.
There is no doubt this is an enormous win for our area, but there are some possible downsides as well. Understandably, in the immediate aftermath of an announcement of this magnitude, the positives and the negatives tend to be exaggerated. I’m not an economist – I’m a Realtor®. But my colleagues and I have studied the D.C. market for decades, and would like to provide a little context for what the likely impact of Amazon’s move will be in a number of important categories.
There are some pretty obvious conclusions. Amazon says it will employ 25,000 people – and possibly more – over the next decade. There is also a “multiplier” that can be applied, as there will need to be more doctors, teachers, dry cleaners and a host of others to support those new Amazon jobs. We’ve seen some estimates of a 5X multiplier – those 25,000 jobs will spawn another 125,000. We believe, however, it is more likely that the multiplier will be more like 1 to 1.5, meaning that taken together, the direct Amazon jobs and those that will be created will be somewhere between 50,000 and 62,500. Think about the excitement last year when Nestle announced they were moving their U.S. headquarters to Rosslyn and creating about 900 jobs.
We haven’t seen the 5X multiplier with Nestle and we opine it will be the same with Amazon. But any way you slice it, Amazon will be creating some huge numbers.
Bear in mind that the immediate metro D.C. area organically adds about 40,000 jobs a year to an employment base of more than 2,000,000. And it isn’t as if Amazon will plop down those new employees tomorrow – it will spread over 10 years or more. If we’re right about the multiplier, it’s a boost of about 10 percent per year over what we would have expected.
Residential real estate
A lot of the people they’ll hire don’t live here now. Let’s assume half of the Amazon hires, as well as half of those “multiplier” employees, decide to buy a home. On the high side, that would be 31,000 homes purchased that wouldn’t have happened if Amazon wasn’t coming to town – so 3,000 per year.
There are roughly 68,000 homes sold annually in metro D.C., so there would be a 4 to 5 percent increase in the number of sales. After several years of a sustained recovery in our metro area, we have started to see a modest slowdown in the number of sales and a slight easing on price appreciation. Amazon’s announcement will give a boost to that slowing market.
We’ve never seen a company culture quite like Amazon’s here – in Seattle, a quarter of their workforce walks to work. And it isn’t an accident that Amazon chose an area served by three Metrorail stops. Those areas that will see the greatest and most immediate appreciation will be those in walking distance – the condos in Crystal City, Pentagon City and Potomac Yards (newly rebranded as National Landing) and those older neighborhoods of single-family homes to the west of Crystal City and to the south of Pentagon City. And anything along a Metro line will benefit.
But we speculate that overall home prices will rise 20 to 30 percent because of HQ2. A 5 percent rise in the number of sales doesn’t typically beget price hikes like that. We think it’s more likely that we’ll see appreciation rates north of 15 percent in the immediate National Landing area because there simply isn’t enough supply, and it will be imperative for jurisdictions to allow for more dense development.
Officials from Amazon, Arlington County, the City of Alexandria and the Commonwealth worked on this for a long time before the announcement was made. But there will be community opposition to this kind of development – because understandably there always is.
Rental rates will rise significantly as Amazon boosts employment. Count yourself among the fortunate if you have a three-year lease on a unit in South Arlington, because those with leases expiring soon are going to see that it’s a landlord’s market.
The writer is executive vice president of McEnearney Associates, a firm of more than 380 associates in nine offices throughout the Washington metropolitan region. For more information, visit www.McEnearney.com.