REITs Set to Gain from Amazon HQ2 Decision

REITs active in the office, multifamily, and retail sectors, including JBG SMITH (NYSE: JBGS), are expected to be among the main beneficiaries of Amazon’s decision to locate two new headquarters in Northern Virginia and Long Island City, New York.

Amazon said Nov. 13 that it will invest $5 billion and create more than 50,000 jobs across the two new headquarters locations. It has also selected Nashville for a new Center of Excellence for its operations business.

JBG SMITH, an owner and developer of mixed-use properties in the Washington, D.C. region, said it has been chosen by Amazon to house and develop the Northern Virginia site at National Landing, a newly-defined, walkable neighborhood encompassing Crystal City, the eastern portion of Pentagon City, and the northern portion of Potomac Yard.

Matt Kelly, CEO of JBG SMITH, said the company expects Amazon’s arrival to “lead to the healthy diversification of the local economy and catalyze the development of a technology ecosystem that has long searched for its footing in the D.C. region.”

Jeffrey Langbaum, a senior analyst at Bloomberg Intelligence, noted that JBG SMITH was already in the process of remaking the National Landing submarket. Doing it in conjunction with Amazon “makes a tremendous amount of sense.”

JBG SMITH noted that it has been working since mid-2017 on a comprehensive plan to reposition National Landing through the delivery of new residential and office development, locally sourced amenity retail, and improvements to outdoor landscape.

Sandler O’Neill + Partners managing director Alexander Goldfarb noted that “it’s hard to imagine a better scenario” for JBG SMITH, given that the REIT was spun-off from Vornado Realty Trust (NYSE: VNO) in 2017 in part due to the challenges Vornado faced in Crystal City following the Base Realignment and Closure (BRAC). “Backfilling that space was a huge challenge and they were trying to be as creative as they could to try and stoke demand,” he said.

Green Street Advisors analyst Danny Ismail agreed that the Crystal City office market has struggled for years, plagued by high vacancies and low rent growth. He pointed out that the technology sector has been a main driver of office fundamentals across the country, so “when you get someone like Amazon in there, with the ability to pull in other tenants, as well as the space that Amazon is directly consuming, it really has the potential to turn a submarket around.” While it’s still early innings for both Northern Virginia and Long Island City, “there’s the distinct possibility that it could change the landscape of office fundamentals in those regions,” he added.

MULTIFAMILY, RETAIL REITS IN LINE TO BENEFIT

JBG SMITH isn’t the only REIT set to gain from the Amazon decision. Langbaum said apartment REITs including AvalonBay Communities, Inc. (NYSE: AVB), Equity Residential (NYSE: EQR), Camden Property Trust (NYSE:CPT), MAA (NYSE: MAA), and UDR, Inc. (NYSE: UDR) “come to mind immediately…they’ve all got assets in and around D.C. and Northern Virginia that will benefit from increased demand as 25,000 new employees flood the marketplace over an extended period of time.”

For its part, Kimco Realty Corp. (NYSE: KIM) noted that its Pentagon Centre mixed-used redevelopment is “extremely well-positioned” to capitalize on the anticipated economic growth expected in the area. Phase 1 of the project, which includes 440 luxury apartment units and 7,000 square feet of retail, is scheduled for completion next year.

Langbaum noted, meanwhile, that between the Amazon headquarters in Long Island City and Google’s announcement that it will double its employee base in Manhattan, New York is clearly being cemented as a technology center. “That probably has a bigger overall influence on the real estate market than just the one specific move from Amazon.”

Goldfarb added that a knock-on effect of the Long Island City location will be to make midtown Manhattan a more attractive market, since it is only two subway stops away. Furthermore, the decision by JP Morgan Chase to build a new headquarters at its 270 Park Avenue site will also boost the midtown market for office REITs including Boston Properties (NYSE: BXP), he pointed out.