Amazon Fever – 3 Insights into Amazon HQ2

3 insights on Amazon HQ2 and what it means for your real estate in Virginia/DC Metro region. #3 might surprise you!

As a real estate investor, or as an owner of real estate at any level, you have patiently awaited the much-anticipated announcement that Amazon made last week which finally answered the question: “What community will land the ‘privilege’ of hosting Amazon’s second headquarters, ‘HQ2’?”

Many communities across the U.S. and Canada invested a tremendous amount of time and resources into arranging a multitude of proposals and appeals to attract HQ2 to their locales because with HQ2 came the promise of up to 50,000 new jobs which are sure to have a tremendous microeconomic impact on whatever locality secured the bid for the Amazon HQ2 final landing spot.

You, and I, and many real estate owners in these different communities have all been dreaming about how it might affect our personal financial futures and the value of our real estate if HQ2 and all the jobs that come with it ended up in our community. Then, as you likely know, Amazon finally declared… Arlington, Virginia! AND… Long Island City, New York! AND… Nashville, TN (new hub in Nashville to oversee customer fulfillment, transportation and supply chain activities). “HQ2” turned into “2HQ2” for both NY & VA (scoring around 20,000 to 30,000 jobs each), and awards 5,000 jobs to the Nashville hub.

OK! Decision made… exciting news! What does HQ2 in Arlington mean to you if you own real estate in the Washington DC metropolitan market? My team and I watched the immediate reactions of Realtors, read and reviewed dozens of news releases and articles and analysis from very credible news sources (Forbes, Wall Street Journal, Washington Post, Amazon press releases), and also opinions, comments, and organic essays from economists, financial advisers, tech-nerds, recruiting agencies, LinkedIn articles galore, colleagues in real estate, friends and clients. We even looked back at a Fast Company magazine issue from way back in 2009 which featured Jeff Bezos on the cover and a story on Bezos’ business philosophies on innovation, personnel management, and doing things in a different way.

Synthesizing our review and analysis, below are three insights as to how this might impact/affect you and your real estate in or around the new Amazon HQ2 in Arlington, VA.

1. BASIC QUESTIONS:

  1. Where, exactly? The Arlington headquarters will be located in what Amazon is calling “National Landing,” which is less than 3 miles from downtown Washington DC. The newly-branded neighborhood includes parts of Pentagon City and Crystal City in Arlington and Potomac Yard in Alexandria.
  2. When? Amazon has already started posting and hiring for jobs and intends to build momentum with attaining more human capital right away in 2019 but they won’t be adding 20,000 new positions in year one.
  3. How many jobs? Depends on who you ask, the timeline of delivery, and how inflated the future was in the eyes of the deal makers. Most projections indicate 25,000 to 45,000 more jobs over the next 5 to 12 years (combined total for both new headquarter locations).
  4. What does this mean for local real estate?

  1. More jobs = more people.
  2. More people = more housing demand.
  3. More housing demand = increase in real estate prices… Right?

An increase in real estate prices sounds logical and this is what has been in all our heads. This is the reasoning behind so many communities making their pitch to land HQ2 – for the economic uplift and real estate appreciation that tends to come with additional housing demand. But, like so many other things, it’s not quite that simplified and there are other powerful variables to consider.

YES – The overall economic impact of Amazon HQ2 will have a positive economic effect on real estate (both rental values and sales values), but let’s think through this a bit more…

 

Additional variables to consider:

  • What if other employers move out of the area and net job growth in the region actually contracts?
  • What if Amazon hires 15,000 people at $15.00 per hour (and not employees at a salary of $150,000/year)?
  • What if mortgage interest rates rise back above 6% in the next year?
  • What if, in anticipation of HQ2 being the “silver bullet”, twice as many property owners list for sale in 2019?

Any one of these possibilities or combination of them would certainly dilute any gain or positive economic impact many of us are salivating after – temper your expectations but expect a good outcome if you own real estate in the long term.

Will the streets of Arlington be paved with gold? AMAZON FEVER

Over the past week it has been the experience of both my team, and other Realtors and colleagues in the real estate industry we conversed with about “Amazon” that we did all experience a blitz of real estate inquiries – some from investors seeking to buy in the region now that Amazon has declared, and most inquiries were from home owners in the region from Washington DC to Leesburg, VA wondering if 2019 will be a good year to sell due to the Amazon news. One call I received was from a person currently selling their house (unsuccessfully) with another Realtor in Alexandria and they asked if, because of the Amazon announcement, I could now sell their property for 10% more than they had it on the market for currently (and it still hasn’t garnered any contracts over the past week at the existing price) – that call was an eye opener! Yet, not one Realtor I spoke with, nor did any agents on my team receive any inquiries from incoming Amazon employees wanting to buy or rent. So, over the last week one comment made by an astute client keeps echoing in my mind, “AMAZON FEVER!” – The idea that Amazon has landed may be causing irrational excitement and over- simplified decision making which is very much going to be part of the new psychology in the Arlington/Alexandria marketplace over the next year or two until the realities of the economic pace and impact sets in. So… lets push aside our Amazon Fever for a moment to get back to some principle-based insights on forecasting the outcome for our real estate in the local economy.

2. PRINCIPLES OF ECONOMICS AND REAL ESTATE INVESTMENT REMAIN:

  1. Laws of Supply & Demand – We have established that demand for housing should be on the rise, and likely anywhere within a 20-mile radius of HQ2. However, how the market reacts with supply of housing, or supply of the right- type of housing within the primary demand pool remains to be seen. Market price is at the intersection of the supply & demand curves, and while we sense that demand will rise, we need to understand what will happen with supply (and the pace of the demand) too. See the graph of the likely distribution of where Amazon HQ2 workers would live to get a sense of a probability for where the demand will be.
  2. Quantitative vs Qualitative – If you are interested in exploring a new property purchase (considering what you believe are promising indicators for future real estate values) – work with an astute real estate investment professional to measure the quantitative and qualitative aspects of the property criteria you are considering buying within. A savvy investor and their agent won’t blindly throw a dart at buying on speculation alone. Understand the dynamics and variables that can have an exponential effect on your investment decision and outcome.
  3. Differentiation – When you go to sell your home/investment/any product, what makes yours different or more special than any other property in the same price range? When you are buying, buy something that differentiates itself in an appealing way. If you are selling/renting, then let us help coach you by making your property stand out in an attractive way for the sale/rental.
  4. Rising Tide Phenomenon & Market Efficiencies – Often, I claim that we can help you buy the property you want, or, help you find the deal you want, but sometimes it’s hard to get both (getting a deal on your most attractive choice). Especially with potentially thousands of more buyers in the local market (which is already an efficient marketplace), don’t miss out on getting a good investment because you keep hoping to “hit a home run” and you miss out on good opportunities while they are there, right in front of you. Being too specific can be counter-productive too. It’s more likely that all real estate within the same radius of the new HQ2 will have a similar appreciation as if buoyed by a rising-tide phenomenon. See Figure 10 above for a chart analysis of the last 20 years of average home sales prices in Arlington vs the rest of the Washington DC region. They all follow a similar trend (Rising and falling tide phenomenon) but the average sales prices in Arlington have already outpaced the rest of the region (cumulatively).
  5. A Fool and his/her money are bound to part! – Be wary! When news of such a significant investment is announced, and when there are many people in the population that will “out-smart themselves” by thinking that investing near either 2HQ2 is a golden ticket, the scammers come out to play! Please be wary of deals that seem “too good to be true” and consider the advice or guidance of well-versed, respected, and investment-savvy professionals before making a speculative investment!

AGAIN – Its ok to think the overall impact of Amazon HQ2 will have a significantly positive economic effect on real estate (both rental values and sales values), but you should still leverage intelligent real estate services and economic knowledge to your advantage to maximize the potential outcome and to avoid the scams that might surface.

The most-logical and detailed research and expert analysis from my perspective was prepared by the Stephen S. Fuller Institute for Research on the Washington Region’s Economic Future – Dr Stephen Fuller is a well renowned economics expert and while it was a less-exciting read, if you are interested in a deeper look at the economic picture behind “AMAZON FEVER”, I’ll implore you to review the statistics, research and articles.

3. RELATED NEWS AND REAL ESTATE CATALYSTS:

The Elon Musk & the Hyperloop Hypothesis! This might sound somewhat conspiratorial, but it’s an interesting connection nonetheless: Almost exactly one year before the Amazon HQ2 decision, entrepreneur Elon Musk and his infrastructure firm, The Boring Company, were issued a permit to begin digging a transportation tunnel between Washington DC, and New York City (which, theoretically, could facilitate a 30-minute transport or commute between the two cities via the super-high- speed transit line, Hyperloop, which Musk claims to already have government approval to do). The permit, issued in November 2017, allows preliminary tests and digging on a site on New York Ave, NE in Washington DC. Additionally, officials in Maryland have approved a tunnel along a state-owned portion of highway which could give more momentum towards the eventual Hyperloop link between New York & DC. So, do you think it’s a coincidence that one year after the permit for the Hyperloop that Amazon, which sparks its business model on transportation, distribution, and delivery logistics names a split of its HQ2 between New York and Arlington? Amazon may be dreaming of 30-minute commutes for its employees from either DC or New York to one another when logistically convenient to do so and product delivery efficiency galore!

Other Catalysts in Virginia/DC Metro Real Estate – Elon Musk and Jeff Bezos aren’t the only entrepreneurs bringing impact & intrigue to the DC & VA real estate marketplace! Tommy Chambers can’t hold a candle to those two innovators (yet), but he did launch a successful start-up real estate firm, Chambers Theory LLC, in early 2018 and is serving clients in VA & DC for residential property management and investment purchases. The Chambers Theory team, in its inaugural year of operation, is the only team to ever be named as “Washingtonian’s BEST” for BOTH property management and real estate sales in the same year, they will be featured on the cover of “Top Agent Magazine” for the first issue of 2019– and they are still getting started and getting better! Chambers Theory set down in Rosslyn to host its own HQ and is opening offices in Georgetown and Reston before the end of 2018. Chambers Theory aims to help our clients have a clear-path to successful real estate investment and property management… and we are doing it without all the business tax incentives and economic benefits promised to Amazon by local officials! For more information on how Chambers Theory might serve your real estate interests (Amazon Fever or not), please see our website www.ChambersTheory.com