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Amazon HQ2: What you need to know about the e-retailer's search for a second home

Jeff Bezos & Co. plan to pick a winner by year's end.

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A look at The Spheres, an Amazon workspace that's also a bio-dome filled with 40,000 plants.

James Martin/CNET

Amazon is embarking on its biggest and most-hyped development project yet.

After growing in Seattle over the past two decades, the world's largest online retailer last September announced plans to create a second headquarters, dubbed HQ2, in North America. Amazon plans to announce where it will locate HQ2 by the end of this year.

The size of the project is massive: Over the next 15 to 17 years, Amazon plans to spend $5 billion to develop the 8 million-square-foot site and hire 50,000 employees there. In comparison, Amazon's Seattle headquarters, which spans 33 buildings, cost $3.7 billion to build and employs 45,000 people.

Not too shabby for the company CEO Jeff Bezos founded in his garage in 1994.

HQ2 serves as another very big sign of Bezos' huge ambitions, with his company spreading out from retail into entertainment, health care, cloud computing, robotics and artificial intelligence. The project is also expected to change the face of another major North American city, after Amazon already remade a big chunk of Seattle.

Still, it's not all puppies and rainbows for whatever city lands HQ2. Traffic and rents are expected to surge due to all the new construction. Plus, there's always a chance that Amazon's big promises will fizzle, or its plans may change, resulting in far less investment and jobs than anticipated.

Let's run through some of the most pressing questions about HQ2 and what it could mean for Amazon and its future home:

Why is Amazon building HQ2?

A company spokesman said Amazon is looking to tap into a new talent pool, particularly in software development and related areas, "to continue hiring and innovating on behalf of our customers."

With plans to hire 50,000 more people in high-demand fields, it likely needed to look beyond Seattle. Competition for top talent with Microsoft and Boeing as well as skyrocketing real estate prices would make such a large expansion in Seattle difficult and expensive.

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Amazon's rocky relationship with its hometown is probably another factor. The city government this year imposed -- then quickly repealed -- a new tax on major employers. As the tax was being considered, Amazon paused some of its local expansion plans, which some saw as a hardball tactic to pressure Seattle's government. Many locals are critical of Amazon's fast growth, which has resulted in more jobs and a stronger economy, but also higher housing costs and more traffic. Amazon said it wanted to find a "stable and business-friendly environment" for its next home, which some might read as, "friendlier to Amazon than Seattle."

Also, Amazon is now the second most-valuable company in the US after Apple, and is expanding in Europe, the Middle East, India and China. It may now have to create another main office on the other side of the country to cater to its global workforce of 575,700 employees and its increasingly international customer base and partners.

After Amazon revealed its plans for HQ2, how did cities respond?

The HQ2 announcement essentially kicked off a "beauty contest" among municipalities. Because the company said it was looking for "communities that think big and creatively," many cities decided to make sweeping and goofy gestures to get Amazon's attention in hopes of snagging the huge development project.

Tucson, Arizona, sent a 21-foot saguaro cactus to the tech giant. New York City lit several landmark buildings in "Amazon orange." And the city of Stonecrest, Georgia, offered to rename a part of itself Amazon, Georgia.

Who are the finalists?

In all, 238 bids from the US, Canada and Mexico came in for HQ2. In January, Amazon narrowed that list down to 20 locations:

  • Atlanta
  • Austin, Texas
  • Boston
  • Chicago
  • Columbus, Ohio
  • Dallas
  • Denver
  • Indianapolis
  • Los Angeles
  • Miami
  • Montgomery County, Maryland
  • Nashville, Tennessee
  • Newark, New Jersey
  • New York City
  • Northern Virginia
  • Philadelphia
  • Pittsburgh
  • Raleigh, North Carolina
  • Toronto
  • Washington, D.C.
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A map showing Amazon's 20 finalist cities.

Amazon

What are cities offering to entice Amazon?

Money will be a big factor in Amazon's decision, much more than cities' circus-like stunts to get noticed. The company isn't being shy about asking for incentives.

In that regard, Montgomery County, Maryland, is offering the biggest publicly known incentives package, at $8.5 billion. Yes, that's much more than the $5 billion Amazon plans to spend on HQ2, so Maryland seems to be hoping Amazon's halo effect will bring in indirect jobs and business, making that huge investment worth it.

Newark, New Jersey, is offering the second biggest known package, at $7 billion.

On the other end of the spectrum is Toronto, the only city outside the US to make the shortlist. It's offering no direct incentives package for HQ2, but Amazon could benefit from Canada's universal health care and a number of government tax credits and grants.

Beyond getting money to move, Amazon also wants to find a new home that offers a good quality of life, solid tech talent and a strong cultural fit.

Will HQ2 benefit the winner city?

For the local economy and jobs, Amazon is promising a big boon, with a lot of indirect investment coming thanks to all the activity from Amazon. Seattle has seen huge growth and a building boom largely due to Amazon, so these promises are backed by some proof. All that new investing and business is why so many city leaders are falling over themselves to win the HQ2 bid.

However, Seattle offers plenty of reasons why HQ2 isn't a plain and simple victory for the winning bidder. Traffic will worsen, rents will go up and local tech businesses may lose their best people to Amazon. Also, HQ2 is such a big project that it has the potential to change the character of the winning city. For Newark -- which could really use the redevelopment -- that could be a good thing, but for Boston -- which is already expensive and has many neighborhoods with their own unique vibes -- that could be lousy.

For its part, Amazon said it plans to partner with the winning city to ensure its project is a positive force and traffic and other issues are mitigated.

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At the entrance of Amazon's Day 1 building is the company's Amazon Go store, a convenience store that does away with cashiers by using sensors and cameras.

James Martin/CNET

How does HQ2 affect Seattle?

Amazon will continue to operate its original headquarters in Seattle and keep expanding there. However, city leaders there worry that the company won't invest as much in the local economy after it creates another main campus. Time will tell if that happens.

Is Amazon the only major tech company shopping around for a new campus?

No. While Amazon generated a ton of publicity for its HQ2 search, Apple is taking a decidedly quieter approach in its search for a new US site. In a sign of just how lucrative and powerful US tech companies have gotten, Apple is also looking to spend billions on a new campus, as part of its stepped-up spending on buildings and more workers in the country.

Where is HQ2 expected to go?

Looking at the 20 finalists, it appears Amazon is strongly favoring the Northeast, with eight of the 20 finalists in that region. Drilling down further, three of those locations are all clustered in the Washington, D.C., area: Montgomery County, Northern Virginia, and DC. You have to also consider Bezos' ownership of The Washington Post, Amazon's growing interest in federal government cloud-computing contracts and even Bezos' purchase of the largest home in DC.

All those reasons are why many HQ2 observers are expecting the company to land on one of those three DC locations. With Maryland offering the biggest known package, that location is probably the one to beat.

Amazon picked most of the eight Northeast spots in different states (or, in DC's case, a district), making it easier for the company to pit those states against each other and get the best possible incentives package. That means the DC area may be at the top of the list, but one of those other five cities could win out if it offers a better deal. 

Moody's Analytics did its own review of the finalists and placed Boston in the top slot, followed by New York and Philadelphia -- all three among those eight Northeast picks.

Going outside the US could be politically tricky for Amazon, especially under President Trump's "America First" administration, making Toronto an unlikely pick. Plus, the city is not offering direct incentives.

Georgia legislators this year attempted to kill a tax break for Delta Airlines after the company stopped a discount program for the National Rifle Association. Following that unfriendly move against a longtime local business, it's likely Atlanta's HQ2 chances are now greatly diminished, if not completely dead.

Amid the months of deliberations, there's always a chance another city lands HQ2. Austin, after all, is where Amazon-owned Whole Foods is located. So, we'll have to wait to find out where HQ2 ends up.

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