Would Amazon come to Chicago?

Amazon's looking for a second headquarters, and there's reason to believe that Chicago might be at the top of that list

Amazon.com Inc. is searching for a second place to call home. HQ2, as the company calls it, is supposed to create 50,000 new jobs, spend $5 billion in construction projects and build 8 million square feet of new space. As the shortlist of contenders narrowed to 20 cities, Chicago remained on the list.

Speculation continues about where Amazon might put its second headquarters, as the company has not made any formal announcements after releasing its list of 20 candidates on January 18, 2018. But there is reason to believe Amazon might be the next company to come to Chicago, as the city meets many of the Seattle-based company’s criteria for HQ2. If so, the online retailer will be the latest in a long string of companies that have decided to call the Windy City their next home.

Left, the Space Needle in Seattle. Right, the Chicago Theatre in the Loop. If Amazon does choose Chicago for its second headquarters, the online retailer's move would match Boeing's relocation to Chicago in 2001. Design by Leo Ji.

From Seattle to Chicago

Chicago is familiar with headquarters of large companies coming to the city, as Crain’s Chicago Business reported in 2016. In recent years, companies such as Archer Daniels Midland Co. and Motorola Solutions have all packed up and moved at least part of their businesses to Chicago.

If Amazon picked Chicago for HQ2, the obvious comparison would be with aircraft manufacturer Boeing Co., which moved its corporate headquarters from Seattle — Amazon’s current home — to Chicago in 2001. But there are key differences in scale. Unlike Boeing, which moved 500 employees to Chicago while nearly 70,000 stayed in Washington state, Amazon plans to build a headquarters that is “a full equal to our current campus in Seattle.”

Aaron Renn, a senior fellow at the Manhattan Institute for Policy Research, coined the term ‘executive headquarters’ to describe corporate offices like Boeing’s, where a relatively small team of mostly management and support staff is separate from the rest of the company.

“Chicago has become a very attractive destination for those,” Renn said. “Think about ADM moving its headquarters to Chicago, while most of the employees are staying in Decatur.” The size of Amazon's second headquarters, however, is “far out of scale” and a significant difference compared with Boeing’s relocation two decades ago, Renn said.

People visit the Cloud Gate at Millenium Park in Chicago. Amazon is expected to consider the labor market in candidate cities when selecting the future site of HQ2. Photo by Leo Ji.

Labor market, education

Joe Cortright, an urban economist and director of City Observatory, a Portland, Oregon-based think tank, said Amazon is likely making an “internal calculus” about the company’s development and the skills needed in the future when considering the location of its second headquarters.

“Amazon is probably thinking: ‘There are a lot of people we want to hire who won’t move to Seattle or aren’t in Seattle,’” Cortright said. “It’s a long way from the East Coast and a long way from a whole lot of very smart people.”

Compared with Amazon’s other shortlisted cities, Chicago has some advantages regarding the available labor force. Renn said Chicago was a good place to hire both top-level managerial executives and entry-level talent.

“They need a lot of young people coming out of college, and they’re also going to need a lot of people with 10 years of experience,” Renn said. “Hiring that mass scale of people is probably going to be a much bigger factor for Amazon.”

Labor Force – The Project includes significant employment requirements at the threshold compensation levels described herein and with corresponding educational attainment of the available workforce. The Project must be sufficiently close to a significant population center, such that it can fill the 50,000 estimated jobs that will be required over multiple years. A highly educated labor pool is critical and a strong university system is required.

Amazon hq2 rfp

In the company's initial call for proposals in Sep. 2017, Amazon indicated a preference for a “highly educated labor pool and a strong university system.”

Renn said the Chicago region attacts highly-skilled labor from engineering programs at major universities, and Chicago’s catchment area for engineering graduates ranges as far as Purdue University in West Lafayette, Indiana and the University of Wisconsin system. The city of Chicago is home to or near some of the nation’s top universities, including the University of Chicago, Northwestern University and Loyola University Chicago.

U.S. Census Bureau data from 2016 show 36.5 percent of the population in Chicago aged 25 or older held a bachelor's degree or higher, slightly above the national average of 34.2 percent. In Seattle, the figure is significantly higher at 60.4 percent.

Cost of living, house prices

In addition to having a large labor market and an urban environment — two factors that technology companies like, Renn said — Chicago also has one of the lowest costs of living.

The cost of living in Chicago is approximately 32 percent lower than in San Francisco and 16 percent lower than in Seattle, according to NerdWallet, a personal finance advice website, using data from the Council for Community and Economic Research.

“The biggest advantage of Chicago is it is a truly urban environment, like New York, Boston or San Francisco, but it has a much lower cost profile,” Renn said. “It’s not as cheap as other Midwest cities but very cheap compared to New York and San Francisco.”

Please include information on your community with respect to daily living, recreational opportunities, diversity of housing options, availability of housing near potential sites for HQ2, and pricing, among other information. Please also include relevant crime data and cost of living data.

Amazon hq2 rfp

Amazon has requested information about the cost of living from bidding authorities. It also asked for information about the types, availability and prices of housing near the areas proposed by local governments for its headquarters.

According to Census Bureau data, the median monthly house rent in Chicago was $1,138 in 2016, compared with $1,470 in Seattle, $1,539 in Washington, D.C., and $1,800 in San Francisco.

Housing is likely a significant factor in Amazon’s consideration, as Seattle’s average housing prices are 55.5 percent higher than when the Great Recession ended in 2009, well above the national average of 31.0 percent. Chicago’s average home prices are only 12.7 percent above what they were in 2009.

An analysis by The Brookings Institution classified Chicago along three other cities as “stable, growth-friendly” locations because the places have “the highest likelihood of absorbing HQ2 with relatively minimal disruption to the existing housing market.”

Ann Logue, a lecturer of finance at the University of Illinois at Chicago, said it’s hard to make predictions about the exact effect on the home prices because it’s unclear how Amazon plans to find its 50,000 employees.

“If a lot of those employees end up coming from the Chicago area, then they’re already here," Logue said. “That’s something we cdon’t quite know.” If Amazon would not be bringing workers from outside Chicago, then the increase in demand in Chicago area housing would be minimal.

The sun sets in Chicago over the Metra tracks in Millenium Park. A new headquarters location's access to transportation links is a consideration for a tech company such as Amazon. Photo by Leo Ji.

Transport

Please provide highway, airport, and related travel and logistics information for all proposed sites. Please also include transit and transportation options for commuting employees living in the region. For each proposed site in your region, identify all transit options, including bike lanes and pedestrian access to the site(s). Also, list the ranking of traffic congestion for your community and/or region during peak commuting times.

Amazon hq2 RFP

Easy access to transport links is another consideration for Amazon. The company said access to highways and an international airport were “critically important” factors for proposals, and asked proposals to include information about transit options, congestion and commuting times. That indicates Amazon is considering both how employees will commute to and from work and how people at the new headquarters would be able to reach places such as Seattle and Washington, D.C.

“Chicago is a major city and a major transportation hub,” Logue said. “You can get pretty much anywhere in the world from a non-stop flight, and we have rail, we have trucking hubs. That alone would be really attractive.”

According to statistics from the Chicago Department of Aviation, O’Hare International Airport has over 1,028 daily nonstop flights to 157 U.S. cities and 126 daily nonstop flights to 60 international destinations, while Midway International Airport serves another 238 domestic flights and 12 international flights. Data from the Port Authority of New York and New Jersey show New York area airports serve around 1,120 daily flights to 104 domestic destinations and another 341 daily flights for 126 international cities.

Chicago's transport links with other cities could be a significant factor as Amazon has increasingly entered into the field of logistics. In February, the Wall Street Journal reported the company was to launch a delivery service in Los Angeles, while over the last few years Amazon had built its own network of delivery drivers, leased 40 cargo planes and constructed an air cargo hub in Kentucky. According to Cortright, if Amazon was looking to become a logistics company, then a city in the Midwest — near the population center of the United States — would be advantageous.

Yet Chicago’s local traffic issues may make Amazon think twice. The online retailer has been accused of contributing to traffic congestion issues in its hometown of Seattle because of its practice of bringing in workers from outside of the area, an issue that many technology companies have also experienced in Silicon Valley.

“You need to have the ability for people to get around,” Renn said. “Chicago does have extremely bad traffic congestion.”

Commuters in Chicago travelled an average of 32.2 minutes to work in 2016, according to Census Bureau data. Seattle commuters travelled an average of 29.6 minutes; San Francisco commuters, an average of 32.1 minutes; Washington, D.C., 24.6 minutes; Boston, 30.6 minutes; New York City, 35.9 minutes.

Renn used to write a blog named The Weekly Breakdown about his experiences commuting on the L when he worked in Chicago in the 1990s. Now living in New York, he said Chicago’s public transit system still couldn’t compare with those of other U.S. cities.

“Chicago’s L system is basically a commuter rail system to the Loop. It’s not the lifeblood of the city like it is in New York,” Renn said. “Most people in Chicago own cars and drive around lots of places.”

Eighty percent of trips in Chicago are completed in a car, according to data from the Chicago Metropolitan Planning Agency. Census data show about half of Chicago commuters drove alone to work, while 22.0 percent of New York City commuters did the same.

“It’s annoying to not have a car in Chicago, whereas in New York, I’ve never missed not having a car,” Renn said. “I’ve never thought to myself, ‘Wouldn’t it be great if I had a car?’”

That lack of access to Chicago's amenities could be a drawback on Chicago’s bid, as Amazon has specifically asked for information about recreational opportunities in the area. While the L and the Metra might allow Amazon employees to commute easily, potential recruits might be reluctant to move to Chicago if they thought they wouldn't have easy access to the rest of the city.

The Amazon in the city

Amazon’s corporate dominance in Seattle has been a source of tension in the past. As the city's largest employer, the company is blamed for many issues, such as rising housing prices, traffic congestion and long commute times, according to The Seattle Times.

“Seattle is essentially a company town for Amazon,” Renn said. “But if Amazon were to hire 50,000 people in Chicago, Amazon wouldn’t own Chicago the same way they own Seattle.”

The company employs at least 40,000 people in Seattle — 10 percent of the 400,000 people who work in the city, according to Census Bureau data. In Chicago, the company’s proposed 50,000 workers would only amount to 3.8 percent of the city’s approximately 1.29 million working population.

“If Amazon really wants to be the player in town, they would probably pick a smaller city than Chicago,” Renn said.

Cortright said he thinks Amazon may not actually be looking at other cities but is instead making a political move against Seattle.

“If they’re locked into Seattle, they don’t have quite as much leverage with the local government in getting favorable policies,” Cortright said. Having another major location means Amazon can potentially threaten to shift future company growth to the other location.

In addition, Cortright said he sees Amazon’s announcement for a second headquarters as playing cities against one another to get tax inducements. He said he wouldn't be surprised if Amazon narrowed the shortlist again and began to hint that it may create more than one alternative headquarters.

The details of Chicago's bid for Amazon HQ2 are unclear as the city and state have not published bid documents, but the Chicago Tribune reported in Oct. 2017 that Gov. Bruce Rauner, Mayor Rahm Emanuel and Cook County Board President Toni Preckwinkle were offering Amazon $2 billion in incentives.

“This amounts to what I call cash prizes for bad corporate citizenship,” Cortright said. “Amazon is now in a position where it can monetize that. The worse it behaves, the more money it’s going to get from whatever community it goes to.”

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