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The AEG HQ2 Index: Which Cities Could Be at the Top of Amazon’s Wishlist?

Since Amazon announced that it would establish a second headquarters, cities have come out of the woodwork to pitch themselves as the best location for “HQ2.” And who can blame them? HQ2 could be the future site for up to 50,000 workers with salaries averaging over $100,000 per year. It’s rare that a single company’s impact on a city could transform the local economy and improve growth prospects in the way that HQ2 could.

There have been many efforts to handicap the race for HQ2, but few have taken seriously what Amazon and other corporate headquarters really value in a potential site. Extensive empirical research and expert observation of corporate headquarters site selection suggest that, in rough order of importance, the most important factors include the following:

  • Talent pool (abundance and skills of local workers)
  • Infrastructure (access to transportation options and global connectivity)
  • Location (proximity to customers, suppliers, and production facilities)
  • Cost of doing business (rents, wages, taxes, and utilities)
  • Incentives

In Amazon's request for proposals (RFP), they emphasize the following items, among others: 

  • Metropolitan area with more than one million people
  • A stable and business-friendly environment and tax structure
  • Potential to attract and retain strong technical talent
  • A highly educated labor pool and a strong university system
  • Proximity to international airport, major highways, and mass transit
  • Competitive incentives
  • Recreational opportunities, educational opportunities, and high quality of life

Using measureable factors from the lists above, we have compiled the AEG HQ2 index, which captures a city’s measurable advantage in attracting Amazon’s HQ2. For the 35 cities in the United States that meet specific requirements from the RFP, we estimate their performance using 11 total metrics across three broad categories:

  • Access to Labor and Services, including four indicators: degrees granted in relevant fields of study by colleges; employment of workers in specific occupational categories; size of the business services industry; and the number of migrants with bachelor’s degrees from other counties, states, and countries.
  • Ease of Transportation, including two indicators: hours of delay due to traffic congestion, and per-capita use of public transit systems.
  • Cost of Doing Business, including five indicators: state and local business taxes (using Anderson Economic Group’s Business Tax Burden studies); rental costs for commercial real estate; and unit cost of labor in 3 occupations important to Amazon. Note that this measure of labor costs takes into account worker productivity, meaning that more productive workers can be ranked higher even if their wages are also higher.

 The AEG HQ2 index is the unweighted average of the values for each category. For each category, a higher value is better than a lower value (e.g. a lower cost of doing business translate into a higher index).

Check out the interactive map and table below to see how your city performs on the AEG HQ2 index.

The 35 metro areas that we include in our analysis all have a population over one million people and an international airport with at least some nonstop flights to Seattle, New York, San Francisco, and Washington, DC. These are requirements from Amazon’s RFP.

By taking an unweighted average across the three categories, we don’t attempt to predict which categories Amazon might favor over others. Also, there are many factors not included in this index that can come into play in Amazon’s decision. Many of these are difficult to quantify and predict. For example, we do not speculate about the nature and size of potential incentive packages. We do not directly capture the “quality of life” in these cities, though quality of life does indirectly impact some of the metrics we include. In order to compete with those at the top, cities that fall further down this list will need to either show Amazon how their particular strengths are important or offer more ambitious plans and generous benefits to overcome their performance on these measurable factors.

For a detailed methodology, click here

For Patrick Anderson's advice on what Detroit can do for a successful bid, objective rankings on Amazon criteria, and his list of strong competitors, click here

Anderson Economic Group has advised both international and U.S. companies on location and site selection, and assisted institutions seeking major investments in assessing their competitive advantages and the economic benefits of a successful project. More information about our market entry consulting services can be found here. Examples of this work include:

The Economic Impact of the Obama Presidential Library in Chicago

Facility for Rare Isotope Beams (FRIB) Economic Impact Michigan State University, U.S. Department of Energy

Market Entry for Turkish Exporters' Assembly (TIM)

Anderson Economic Group has pioneered objective metrics on high-tech industries, business tax burdens, and other important local and state economic indicators. Examples of this work include:

Automation Alley Technology Industry Report

Review of Kentucky's Economic Development Incentives

The Economic Impact of Business Tax Credits in Tennessee

Effectiveness of Michigan's Key Business Tax Incentives