Amazon's Influence on Northern Virginia's Lodging Market
By Chelsey Leffet Director, HVS | April 14, 2019
This article was co-authored by Chris Fernandes, Director, HVS Consulting and Valuation
In 2018, Amazon revealed two locations for HQ2-Long Island City, New York, and Crystal City, Virginia. Among the anticipated benefits of HQ2 is an influx of new hotel demand. This article examines the potential impact on northern Virginia's lodging market.
Following a nearly year-and-a-half Request for Proposal (RFP) process, Amazon announced that it would split the location of its new HQ2 campus between two cities in the Northeast-Long Island City, New York, and Crystal City, Virginia. The selection by Amazon is widely viewed as a "win" for these two cities, which expect to benefit from the addition of this major employer. Among the many anticipated benefits of the new HQ2 is the potential for a significant influx of lodging demand, comprising both transient and group travelers. The intent of this article is to provide an understanding of the potential effect on the lodging industry in northern Virginia.
Amazon's Crystal City HQ2 complex will encompass a neighborhood now referred to as National Landing, which includes Crystal City and parts of Pentagon City and Potomac Yards. Amazon reports that the initial footprint will comprise four million square feet of office space, with the opportunity to expand to eight million square feet of space. Smith, a publicly traded REIT based out of Chevy Chase, Maryland, owns most of the buildings within the immediate area and is expected to act as Amazon's development partner, property manager, and leasing agent going forward.
The following illustration depicts the planned location for Amazon's new HQ2 complex in Virginia.
With Amazon promising the creation of 50,000 jobs associated with HQ2, the company vowed in its dual-city selection that the economic impact would be divided equally among the two locations, suggesting that 25,000 jobs will be created in National Landing over the next decade.
From all the publicly available data released in relation to HQ2, we have compiled the following timeline of projected employment to aid in estimating the future effect of HQ2 on the northern Virginia lodging market.
As part of the two-phased grant and incentive process agreed upon with the Commonwealth of Virginia and the Virginia Economic Development Partnership Authority, the project is estimated to create as many as 37,850 new jobs, with a minimum of 25,000 in Virginia. Both phases are expected to run through 2034. Upon the writing of this article, the employment growth and development expansion into northern Virginia was anticipated to begin almost immediately, with 400 new Amazon jobs expected in 2019.
While concrete plans or leases have not been released, most of the targeted buildings throughout the National Landing are older structures that will require renovations, including changes to the footprint, with some potentially being demolished and replaced with purpose-built structures. However, three buildings comprise the initial phase of the complex: JBG Smith's 330,699-square-foot building at 241 18th Street South (near the Crystal City Metro), the 221,000-square-foot building at 1800 South Bell Street, and the 272,000-square-foot building at 1770 Crystal Drive. Furthermore, construction on another site at 1900 Crystal Drive is expected to commence in early 2020.
Other significant components of the development plans for this area include two major development sites, PenPlace and Metropolitan Park. PenPlace is a ten-acre site entitled to support up to 2.1 million square feet of development, including a hotel and one residential building, whereas, the residentially focused Metropolitan Park development, which only has two remaining undeveloped parcels, is anticipated to receive approval on shifting the allowed residential use to office space use.
As the majority of the remaining HQ2 campus space is delivered over the following ten years, annual job-growth increases are expected to remain steady. While the forecast of total employment gains that are expected to be created by Amazon is impressive, it is somewhat modest in the context of the broader region. According to the Stephen S. Fuller institute and data released from the U.S. Bureau of Labor Statistics (BLS), 50,900 total jobs were added to the Washington, D.C. metropolitan area in 2017, compared to 2016, with 22,600 of these jobs created in northern Virginia. The addition of the Amazon jobs will contribute to the future growth of the area, but the significance of this addition lies as much in the potential for job growth from ancillary support industries as the introduction of this specific employer. The greatest impact will be on the National Landing corridor and the adjacent submarkets, as the new employment is expected to have a rejuvenating effect on this region.
Seattle – A Model for Potential Impact
Given that the anticipated size and scope of HQ2 is modeled after Amazon's existing headquarters in Seattle, Washington, Amazon's impact on Seattle, and particularly the lodging market, has been analyzed to help estimate the future impact of HQ2 on National Landing, Virginia.
The following graph illustrates Amazon's year-over-year employment growth in Downtown Seattle.
Furthermore, Amazon released the following economic impact statistics regarding its Seattle operations during its RFP process:
These data illustrate that Amazon's growth in the market has been rapid in recent years, with the addition of 18,000 positions between 2014 and 2016. We have compiled these employment statistics alongside the room-night-generation data in the table below.
We have also conducted interviews with Seattle hotel professionals and economic development officials, which confirmed that the impact of Amazon's growth has spread past the company's direct investment and operations. Amazon's presence in Downtown Seattle has positively affected the corporate landscape of the market, with tech companies such as Google, Facebook, and Uber capitalizing on the new depth of tech talent in the market to establish satellite operations; Seattle's relative proximity to these companies' main hubs in Silicon Valley, as well as Microsoft's significant presence in the market, has also contributed to this trend.
Local market participants also credit Amazon with enhancing Seattle's profile as an attractive leisure destination. As the city has evolved to accommodate tech-forward innovations, a growing population of Millennials, and demand for more upscale accommodations and amenities, the company has helped add an "it factor" that, while difficult to quantify, has undoubtedly changed U.S. travelers' perception of the market. Arguably more impactful, Amazon's global presence has placed Seattle as a destination marker for the rest of the world, as well.
Based on the information published by Amazon, we have estimated the total impact on room nights in the Seattle market through the application of an indirect impact multiplier. Our estimate is illustrated in the following tables.