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After fleeing New York, Amazon finds warmer welcome for other HQ2

Yes, Virginia, there is an HQ2. Never mind the beating that Amazon took with its failed effort in New York.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
6 min read
Crystal City - Arlington, Virginia

The Crystal City neighborhood in Arlington, Virginia, where Amazon plans to build its next big headquarters.

Matt McClain/Washington Post via Getty Images

It was business as usual in Long Island City late last month. Catering and moving trucks buzzed in and out of a waterfront neighborhood. One worker manned a forklift on the sidewalk while another nearby spray-painted a metal frame.

You wouldn't know it from standing there, but just weeks earlier this quiet industrial block in Queens was slated to become a 25,000-employee campus for Amazon -- that is, until protesters and local politicians helped kill the project.

Meanwhile, at Crystal City, in Virginia's Arlington County, it's a very different scene, where demolition has already started in preparation for construction of Amazon's surviving 25,000-employee development. Local activists are raising concerns about the Virginia project, but -- unlike in New York -- there seems to be far less vitriol.

When the New York project fell apart in February, focus quickly shifted to Crystal City, where plenty of onlookers wondered if both developments could fail. But according to development experts, local politicians and demographic data, the Virginia project was always a better fit and more critical to Amazon's future than the New York site. Not only that, but walking away from both projects would be an even bigger embarrassment for the company. For those reasons, it seems likely Amazon will stay the course in Crystal City, even if more protests or challenges bubble up.

"With Amazon pulling out of New York, the potential gains for Virginia have only gone up," said Adam Ozimek, a Moody's Analytics senior economist. "It seems unlikely that the deal will be stopped at this point."

The future of HQ2

Amazon's massive expansion project, dubbed HQ2, was first introduced in September 2017 and enjoyed months of fanfare as hundreds of municipalities vied for the development in hopes of revitalizing their communities and bringing high-paying tech jobs. But after the winners -- Long Island City and Crystal City -- were announced in November, the public response in New York quickly turned negative amid concerns about strained infrastructure, displacement and corporate welfare.

Watch this: Amazon kills plans for NYC headquarters

Amid a broader backlash against the tech industry and its business practices, HQ2 has turned into an albatross for Amazon. The company now needs to work through its last standing HQ2 development with far less cheering from the public and while working to repair its reputation, which took a beating in New York. If it manages to do both, HQ2 may become a long-term success, despite a botched and stumbling start.

Amazon didn't respond to a request for comment for this story.

What makes the Virginia project different

When Amazon first unveiled its plans for HQ2, the project was presented as a single 50,000-employee site that would be equal to its existing headquarters in Seattle. But the company ultimately announced two 25,000-employee projects instead, saying the split would make it easier to hire top tech talent, and quickly. A 5,000-employee site was announced for Nashville, too.

Arlington County, just outside Washington, DC, was a predictable pick and affords Amazon a handful of obvious advantages.

The DC area is the biggest data center market in the US and already a major hub for Amazon Web Services, one of the company's leading profit generators. Building a new headquarters in DC brings Amazon closer to the US' political power center and puts it in a better position to gain more government contracts for cloud computing, government supplies purchasing and other services. For these reasons and more, the DC area was seen as the long-time frontrunner for the project.

New York was a bit more of a surprise choice, but fit with Amazon's efforts to grow in fashion, marketing and advertising markets.

Both deals included plans to expand to roughly 40,000 employees, nearly as large as the Seattle headquarters, with 45,000 employees. Considering that potential expansion, the company ultimately may have realized it didn't need such a rapid expansion in headcount that would come from two HQ2 projects, according to a person familiar with Amazon's thinking.

This might have become Amazon's planned HQ2 site in Queens, New York

A look at Amazon's planned HQ2 site in Queens, New York, which is inhabited by squat industrial buildings set along the East River.

Ben Fox Rubin/CNET

One element that makes the New York and Virginia projects so different is their current uses. While the site in Long Island City is already filled with several operating industrial buildings, the Crystal City project includes loads of empty office space.

"This is a game-changer for Arlington," said Stephen Fuller, a professor at George Mason University's Schar School of Policy and Government. "The tax base is eroding; this turns that around."

The Virginia location was first developed in the 1960s on old railroad facilities, junkyards and industrial space. Many of its first occupants were military workers, said Fuller, who was hired by the Virginia Economic Development Partnership last August to study the economic impact of HQ2.

Then the 9/11 terrorist attacks pushed many of those military tenants out of urbanized areas. Tightening federal budgets and a deep recession in 2008 added to Crystal City's woes, with 24,000 jobs eventually pouring out of the neighborhood, leaving a huge hole in the local economy, Fuller said.

The potential to bring back all those lost jobs with one major tenant was why local officials pushed to get the project.

"It fits," said Christian Dorsey, chairman of the Arlington County Board. "And with it comes a substantial amount of money from the Commonwealth of Virginia" for infrastructural improvements that were long needed.

Long Island City isn't facing the same problems. There are several office developments being constructed there already and office vacancy rates are slightly better, at 17% versus 20% in Crystal City, according to real estate company Cushman & Wakefield and Arlington County. Added to that, the population density in New York is nearly three times higher than in DC, which is likely why many New Yorkers complained about HQ2 burdening already strained infrastructure, including public transit, schools and sanitation.

Political support in Virginia is far stronger, too, with local and state officials standing together to back the project. In New York, several state and local Democrats worked against fellow Democratic Gov. Andrew Cuomo and Mayor Bill de Blasio as they tried to move the development forward.

Cuomo and many local corporate leaders have since attempted to revive the New York development, but Amazon hasn't showed any sign it plans to come back.

"We look forward to continuing our partnership with Amazon on the project that we agreed to here in Virginia and that has been approved overwhelmingly by our General Assembly," Alena Yarmosky, spokeswoman for Virginia Gov. Ralph Northam's office, said in a statement.

Not all smooth sailing

While Virginia appears a better location for Amazon, there are still plenty of problems local activists want to address with the project.

Roshan Abraham is part of For Us, Not Amazon, a coalition of community activists that formed to raise concerns about the development. As in New York, activists have opposed plans to provide Amazon with financial incentives, saying Amazon is one of the most valuable companies in the world and doesn't need the money.

Virginia offered $573 million in incentives, still well below New York's offer of $3 billion.

For Us, Not Amazon has also raised concerns about the project potentially displacing residents in nearby Arlandria, a lower-income, largely Latino neighborhood. The coalition called for a public hearing with Amazon to address their discomfort with the company's business practices, such as its treatment of workers, anti-union stance and marketing of its services to US Immigration and Customs Enforcement.

"We're constantly reminding the board that we're your constituents, not Amazon," Abraham said.

Dorsey, from the Arlington County Board, has resisted scheduling a public hearing, saying he'd be open to a forum on the incentives package with Amazon, not the many broader issues activists have raised. He added that he doesn't want a repeat of New York City Council's hearings, in which Amazon executives were lambasted for hours by council members on a wide variety of topics and audience members started chants against the company.

He said he didn't see Amazon's business practices deviating significantly from those of other companies in the DC area, which include defense contractors. For that reason, he added, there was little basis on which to argue that Amazon didn't represent Arlington's values, as activists have stated.

"I would love to create an ecosystem of companies and people that share my value set," Dorsey said. "Communities fall very short of that, with or without Amazon, including ours."

Originally published April 5.
Update, April 8: Adds commentary from Moody's Analytics.