Is anything surprising about Amazon’s HQ2 shortlist?

There were few surprises in Amazon’s shortlist for its HQ2, and of the 17 remaining regions, large metro areas such as Atlanta, Boston, Greater Washington, and New York are still considered the favorites (see Map 1).

However, in addition to these major east coast hubs, the shortlist also includes a handful of smaller metro areas in the Midwest and the South. For instance, the shortlist I developed in September (see Map 2) did not include Columbus, Indianapolis, Miami, Nashville, Pittsburgh, and Raleigh.

What does the inclusion of these mid-sized metro areas reveal about Amazon’s intentions?

Map 1

Map courtesy of Amazon

Map 2

East coast bias. My initial analysis included west coast metros such as San Diego, San Jose, San Francisco, and even Seattle, since those places generally have attractive fundamentals for a tech company. Yet, Los Angeles ended up being the only west coast metro on Amazon’s shortlist, a clear signal that they favor the geographic and communication advantages offered by the eastern and central time zones. Miami’s role as the geographic and economic gateway to Latin America, in particular, may help explain its selection.

Does size matter? Of the six metro areas that were not included in my original list, only Miami is among the nation’s 25 largest regions by population. I leaned toward larger metro areas because of Amazon’s massive employment requirements—up to 50,000 workers. That footprint would make a much greater impact in a region such as Raleigh, which has fewer than 700,000 workers, than in a place like New York, which boasts 9.6 million workers. One has to believe that this reality still favors larger places.

Size may still matter not only because Amazon needs lots of workers, but also because local infrastructure will need to accommodate inevitable population growth.

Size may still matter not only because Amazon needs lots of workers, but also because local infrastructure will need to accommodate inevitable population growth. As Adie Tomer pointed out, smaller metro areas do not currently operate large public transit systems, although planned expansions are underway in several markets. Housing is also an issue. While mid-sized metro areas tend to be more affordable, and oftentimes easier to build in, they simply will feel the impact of Amazon’s arrival more than larger places. As my colleague Jenny Schuetz argues, while “Amazon’s new HQ would make noticeable ripples in the largest cities; for smaller metros, the effect could be more like a tidal wave.”

Hedging political bets? All six metro areas reside in red, or at least purple, states that voted for President Trump in the 2016 election. Four of the six states have Republican governors. Would anchoring a second headquarters in a Republican state make Amazon a more politically palatable company as it receives more scrutiny from regulators?

Affordability. Columbus, Indianapolis, Nashville, Pittsburgh, and Raleigh are less productive than many of their larger, east coast metro peers. Nevertheless, their labor forces may be productive enough given that Amazon can likely pay them lower salaries as well. For current or prospective Amazon employees, these cities offer a more affordable complement to working at HQ1 in Seattle, especially for those working in more traditional business support services such as accounting, project management, or sales. While it depends on the core function and workforce that HQ2 demands, as a talent retention strategy, it may make sense for Amazon to select a city that is more affordable than Seattle.

Amazon’s shortlist reveals two broad clusters of places: larger, more expensive coastal tech hubs and smaller, more affordable regional business centers in the middle of the country. The challenge for the mid-sized cities in the latter group—those that I did not include in my initial analysis—is that they will need to argue why they offer a better environment than larger, but still relatively affordable, metro areas such as Atlanta, Chicago, and Dallas that boast deeper labor pools and better transportation infrastructure.

Amazon’s shortlist reveals two broad clusters of places: larger, more expensive coastal tech hubs and smaller, more affordable regional business centers in the middle of the country.

The mid-sized regional pitch will likely center on strong universities, good quality of life, and high-capacity and accessible local leadership networks that can adapt and evolve these regions’ talent and infrastructure bases to grow alongside Amazon. While the odds are still long for an investment at the scale of HQ2, that remains a compelling economic development offer.