There's plenty of excitement (and questions) about Amazon's decision to build its headquarters near Washington, D.C.
With Amazon’s decision to locate its second corporate headquarters in the Washington, D.C. market known as National Landing, situated just outside D.C. in the Crystal City area of Northern Virginia, buyers, sellers, investors, developers and renters are already lined up to “ride the wave” in housing.
Depending on whose figures are cited, the 16-year forecast for job creation falls between 42,850 to 69,600.
This bodes particularly well for rental housing in National Landing, which currently comprises 72.8 percent renters as part of the Washington, D.C., area’s overall homeownership rate of 61 percent compared to 64 percent, nationally, says Danielle Hale, Chief Economist, Realtor.com.
Trends and forecasts regarding Amazon new corporate digs were discussed Dec. 12 at “Amazon HQ2: Impact on Local Housing Markets” hosted by George Mason University’s The Center for Real Estate Entrepreneurship in Arlington.
The consensus from the six-speaker panel was that Washington, D.C. is fully capable of absorbing the growth.
Jeannette Chapman, Deputy Director, Stephen S. Fuller Institute, says Phase I of Amazon HQ2’s build-out is expected to bring 25,000 jobs through 2030 and Phase II could add another 17,850 over the final four years of the planned 16-year corporate rollout.
Today, 65 percent of the D.C. workforce is imported, Chapman says, and it is expected that Amazon will import many of its jobs, as well.
Chapman says that the location of Amazon’s HQ2 in Arlington County, Va., would result in household and population growth in the County and the Commonwealth. This household growth would be driven by the jobs at HQ2 and the jobs generated by HQ2’s operations expenditures. At full build-out, the County would gain 9,065 households or 8,233 households, depending on the average wage of HQ2 jobs These households would primarily hold support jobs created as a spillover result from HQ2’s arrival, live in multifamily housing units and be renters. At full build-out, the Commonwealth of Virginia would gain 73,705 households or 78,319 households, depending upon the average wage of HQ2 jobs. These households would primarily hold a job supported by HQ2 spending, live in single-family detached units and own their home.
“The Washington region is larger than Seattle so the Amazon-related households will be more diluted in D.C. than in Seattle,” Chapman says. “This effect will not directionally change the trends in existing conditions, including current challenges such as infrastructure, transportation and housing affordability. When you think of the number of employees who work in the Washington area and in Arlington County, Va., both are denser than Seattle.”
When compared to current Washington area workers, Amazon-related households will have higher average incomes and therefore will be able to afford new construction and generate relatively more tax revenue compared to existing residents.
Says Ben Sage, Director for Mid-Atlantic Region, Metrostudy, “When you list housing, it’s important to include the words ‘National Landing’ and ‘Amazon.’ This will boost your search results.”
Forthcoming multifamily housing supply in the National Landing area includes Potomac Yard, with 342- and 360-unit buildings; Pentagon Centre, with 400- and 253-unit buildings; Crystal House III, with 252 units; and 1900 Crystal Drive, with 750 units.
“We forecast average effective rent growth for the Washington region of 1.4 percent over the next three years,” Sandy Paul, Senior Managing Director of National Research at Newmark Knight Frank, says. “That’s less than we’ve seen during this market cycle, but it’s influenced by the substantial amount of new product that has delivered in the past two years.”
The current population of National Landing is 14,672 with 72.8 percent of those residents being renters. The 2018 average household income in the area is $138,191, Paul says, citing NKF, Axiometrics and ESRI as sources.
Regarding Amazon’s arrival, “challenges include the fact that the better school systems in this area already are bursting at the seams and we’ll also be dealing with the ongoing, growing traffic congestion,” Paul says. “But when you look at the apartment development pipeline and demand from new jobs, we’re well prepared to absorb these positions. This market already adds an average of 43,000 jobs per year.”
Christian Barreiro, Associate Partner, The Zupancic Group of Marcus & Millichap, says the Amazon hype will affect cap rates because “right now, a lot of people want to ride the hype wave.”
“This kind of market can be very good for sellers,” Barreiro says. “There are a lot of out-of-market buyers showing interest. They understand the kind of impact Amazon can have on a market because they’ve been through this before. There are cash buyers, which comes into play because interest rates are climbing. More equity is required. We see 60 percent loan-to-valuation. We expect a spike in adaptive re-use projects and condo conversions to help accommodate increasing housing demand.”
Affordability was a problem in the Washington, D.C., market even before Amazon’s announcement, Michelle Winters, Executive Director, Alliance for Housing Solutions, says.
In 2000, there were 19,740 units available to people who were at 60 percent of the area median income (AMI). In 2018, that number fell to 3,152, Winters says.
“Amazon’s growth will add to an already constrained and unaffordable housing market,” Winters says. “But there is an opportunity. Can Amazon’s arrival help build political will and the economic ability to attack housing affordability head on through both supply and dollars?”