Houston, We Have Problems: Where Houston's Amazon HQ2 Pitch Fell Short

Houston may not have had much hope to win Amazon's HQ2, but America's fourth-largest city not even making the shortlist has some scratching their heads.

Greater Houston Partnership CEO Bob Harvey called Amazon's Houston snub a "wake-up call" for the city.

"I think that's an accurate statement," Midway Executive Vice President David Hightower said. Midway has been working with the Greater Houston Partnership to bring the e-commerce giant to its East River site near Downtown. "Houston needs to up its game." 

Houston Mayor Sylvester Turner called Amazon's decision "disappointing and heartbreaking," but said there is a lot of work that still needs to be done in Houston. 

In its initial ask, Amazon told candidate cities it was looking to build in a city of 1 million residents with easy access to mass transit, proximity to an international airport, a diverse metro population and attractive recreational opportunities. The company has also made it clear that financial incentives and lower operating costs will be heavily considered.

According to Rice University McNair Center for Entrepreneurship and Innovation Director Ed Egan, Houston fell short of that ask in four critical areas: public infrastructure, educational institutions, the tech scene and government incentives. 

"Houston was not in a position to go after this," Egan said. "To use an analogy, Amazon is looking for hockey players, we've only got football players."

Public Infrastructure

Between an abundance of literal and figurative parking lots, lack of rail and flooding concerns, Houston's infrastructure was likely a major sticking point for Amazon. 

"Amazon doesn't want to build [in] a place with 50,000 parking spots in it," said Adam Ozimek, a senior economist at Moody's Analytics. "That, possibly more than anything else, is going to rule out Houston."

Egan pointed out that transportation is so bad in Houston, Turner won the last mayoral election with a campaign centered around fixing potholes.

"We have terrible roads and almost no public transportation," Egan said.

City of Houston Controller Chris Brown told the Houston Business Journal Houston's lack of a robust rail network, particularly one that connects to an airport, may have been one of the city's shortfalls. Egan agreed, saying Houston's lack of rail connections to the airport likely played a particularly large role. 

"Cities should be thinking about changing infrastructure as a growth driver," CBRE Head of Research Spencer Levy said. 

Hurricane Harvey and Houston's incessant flooding issues did not help either. Seeing photos of Houston's flooded highways on the front page of nearly every newspaper across the nation could cause any company to pause when considering Houston. 

"If Houston was competitive, flooding would matter on the margin, but since we didn't have what they're looking for, it really didn't matter," Egan said. 

Educational Institutions

Though Houston has two highly ranked universities in the University of Houston and Rice, when compared to other cities on Amazon's shortlist, with Ivy League institutions and massive state school systems, Houston is lacking. 

"The schools [in Houston] are really small," Egan told Houston Matters. "What we really need is something like a UT Houston, a big cornerstone state school to drive our profile."

Houston was close to boosting its educational footprint before the University of Texas system walked away from plans that had been in the works for years. UT spent $215M acquiring over 350 acres just south of Loop 610 near NRG Stadium, but when the University of Houston called foul over the competition, UT scrapped the project, which was later revealed to be a technology-focused data science campus.

Once the plan came to light, local leaders tried to revive the project, thinking it would help attract high-tech companies. It may be too late, though UT still owns the land. 

"That project is the sort of thing that will build our capacity so that, in five to 10 years, we can be a player," Egan told Bisnow. "A data science institute would have only been a start, but it would've been an important start."

"When you're a tech company, you want to be able to attract and retain tech employees," Levy said, speaking of Houston generally. "Creation of that talent pool starts in university systems, but retention comes from other things." 

Lack Of Tech Culture

As the No. 1 destination for STEM talent according to the GHP, Houston's labor force is chock full of advanced degrees, but its relatively small number of computing and software-focused workers likely hurt the city's chances. Amazon is notorious for its high turnover rate, so Houston’s lack of rival tech employers would subdue employment opportunities.

Beyond that, Houston's culture may have turned off Amazon. The world's leading oil and gas hub has produced a different work dynamic than what Amazon is used to in the high-growth Seattle tech scene where co-working and hoodies abound. 

"Houston has faced challenges because of our industry mix, we're not very engaged in startup ecosystems," Egan said.

Houston's bid hinged on what leaders called the Innovation Corridor, a four-mile stretch along the Metro light rail line running from Downtown to the Texas Medical Center, where many of the city's tech startups and venture capital funds call home. While the idea behind the corridor is strong, it is still growing. 

"Mayor Turner has spearheaded a number of innovation initiatives. We have the will, but we just don't have much in place right now," Egan said. "There's nothing wrong with our tech culture, it's just small." 

Lack of Incentives

Lastly, the city of Houston may not have been willing to play ball. According to Egan, it is important to remember that above all else, Amazon's HQ2 search is a bidding war. 

"What they really want is the best possible deal," Egan told Houston Matters. "They're shopping for the best spot for them."

Between Hurricane Harvey, traffic nightmares and ongoing budget concerns, the city of Houston was likely not in a position to offer what other metros could. Other cities are offering Amazon free land, civic control or in Newark, New Jersey's case, $7B. 

Exactly what the city of Houston offered has not been released, but experts believe it is far less than what others offered. 

In the end, Amazon passing on Houston may be the best thing for the city. Cities that give Amazon the farm will rely on local synergies to gain back the investment. Egan says Houston does not have those type of synergies. 

"For us, this would be a major downside, having Amazon on the terms they're asking," Egan said. "But if we could have them on our terms, it might be different. We don't have the synergies because we don't have the ecosystem." 

"When you don't make a top 20 list of an innovative company like Amazon, you know you have work to do," the GHP's Harvey said. 

Amazon not selecting Houston has invigorated Ryan McCord, the developer behind Generation Park, which bid for HQ2 and pitched to Amazon founder Jeff Bezos with a Seattle flyover.

"I want to double down on Houston," McCord said. "We have to continue to tell the story of what makes Houston a great place."