No HQ2 For Phoenix, But The Growth Outlook Downtown Is Solid Anyway

Why did Amazon leave Phoenix off its shortlist of candidates for HQ2? That was the first question that the development panel speakers at Bisnow's Future of Downtown Phoenix event answered, though it was necessarily speculation, since the retail giant is not talking.

Whatever the reasons, the growth outlook for Phoenix and especially Downtown is very bright, even without hordes of high-paid Amazonians relocating here, the speakers said.

The speakers cited several possibilities for why Amazon left Phoenix off the list, but all of them agreed that Phoenix's location, something that cannot be changed, worked against it. Amazon seems to want a more eastern location. 

Also, the incentives might not have been to Amazon's liking, and the talent pool — while getting stronger — is not quite up to snuff, as far as Amazon is concerned. 

But there was not wholehearted agreement on that point, since according to the company's specs, a market only has to be able to attract tech workers. That is, be a place where people want to move. If the last few years are any indication, people want to be in Phoenix.

Then there is the matter of cool. Whatever its other virtues, Phoenix might not be quite cool enough for Jeff Bezos. With the growth of food, drink and entertainment in Downtown, cool is on the way, but not quite here yet.

Cool or not, the momentum toward urbanization for Downtown Phoenix is strong, the speakers said. Downtown's current vibrance is rooted in the creation of Phoenix's light-rail system. 

That kind of infrastructure is expensive at first, but pays off in spurring development and a renewed interest in Downtown. As the system expands, the effect will be even greater.

Also important in the momentum for Downtown development is the education cluster that is growing in the area, the speakers said. Students might not be able to support residential and retail development Downtown much now, but that is short-term thinking. 

Phoenix needs those students to stay in town after they graduate, and the more interesting Downtown is, the more likely they will be to stay, provided jobs are available.

Downtown Phoenix is definitely on a growth track, the speakers said, citing a few numbers. About 1,800 apartment units have been created in the market in the last two years, and another another 1,200 are under construction. Yet another 2,500 to 3,000 units are in the planning stages. 

Is that too many? Probably not. It might not even be enough.

Phoenix added more than 32,000 people to the city's population between July 2015 and July 2016, according to Census Bureau calculations. The increase represents more raw growth than any other city in the U.S. for that period. Not all of those people are moving Downtown, but a fair number are.

But there are some missing pieces of the Downtown puzzle, the speakers said. Arizona State University and biotech have provided some high-paying jobs, but there needs to be more to sustain Downtown, pay for new housing and support the development of retail and restaurants over the long run. There is optimism that that will happen. 

This kind of growth is also going to cause some headaches, the speakers said. One headache that is already pronounced for the local real estate industry is construction costs, both for land and labor, both of which can be scarce. 

How to deal with construction costs? One way is to make parts of structures, such as walls, or even whole units, off-site and assemble them on-site. That technique has been around for quite a while, but it has become more important. So are techniques for making residential development more efficient by rethinking unit size and common-area arrangements.

Finally, the speakers were asked whether Phoenix counts as a world-class city. There is no exact definition of that term, but people — especially investors — know one when they see one. "Not yet" was the consensus, but Phoenix has the momentum to get there, and soon.