Amazon announced they are opening major new offices in Arlington, Virginia and New York City. Each site will hold 25,000 new Amazon employees at an average salary above $150,000. Getting to that level with take many years, next year under 1,000 employees will be at each site.

I lived in Arlington for many years and own rental property there. The Amazon decision is likely to catalyze a much more rapid ascent of the technology sector in the DC area. The DC area has a strong foundation of internet technology to build upon, though many people are not aware of this. The Amazon move will likely help shift the perception of the DC area as government driven and the growth of internet technology activity in the area is likely to grow rapidly.

The 25,000 jobs (even with a greater than average salary of $150,000) isn’t the main impact of the announcement. The big news is the likelihood of Amazon’s highly visible efforts catalyzing more tech businesses (especially 5-7 years down the road when some of the Amazon people start creating their own startups). It isn’t that Amazon is moving into a barren tech landscape, there is already a strong base from which to launch a long term tech boost to the DC area economy.

The direct impact of Amazon’s employees renting and buying in and around Arlington is not going to be very strong for a couple years. Amazon plans to add 500 people to Arlington in 2019; 1,000 more in 2020 and 2,000 more in 2021. But investors already can plan for a strong future demand from Amazon and all the activity that Amazon’s growing presence will contribute to.

The increase in housing prices in 2019 and 2020 will be primarily investor driven. In 2020, 2021 and going forward the impact of Amazon employees directly and all the extra activity spurred on will start to have an impact. Unlike the stock market where such a predicable strong investment future would drive prices up say 30-50% immediately, in real estate it is much more likely for the gains to be spread out over the long term.

If prices in housing increase in Arlington it is more likely they would increase say 10% in the first year and then an extra 3% (above what the increase would have been without Amazon’s move) each of the next 10 years. From a long term investors perspective this provides a great possibility for buying now (even after the news) and not having to pay a huge premium.

Rental housing prices are not likely to go up much immediately. And they will take longer to show up in the market, they will be much more closely tied to new job additions (from Amazon and others). So investors have to pay a higher price today (say 5-10% higher) and in the first 1 or 2 years probably see no higher rents than they would have otherwise. And even after 2021 those rents are likely to go up more slowly than prices of real estate.

The rental rate increase will be tied to the demand in the market immediately. While prices will reflect those immediate rental rates and also the prospect for future rent increases that the owner could expect.

Houses most in demand by those highly paid Amazon staff (and others) will see the largest increases. My guess is this will mean the greatest increases for the most in demand for rich with a emphasis on areas that attract younger people. My guess is Arlington, Alexandria, parts of Washington DC, even Bethesda will see the largest increases over the next 10 years. I expect McLean and parts of Fairfax county will also do well (especially since one of the areas likely to benefit from internet technology expansion in the area will be Tyson’s Corner and the Dulles corridor and even further out).

The most in demand areas for young and rich people with reasonable commutes to Crystal City will likely increase the most in the first 5-10 years. Alternatives to those areas will increase more slowly at first and later probably have faster increases as even the rich salaries from Amazon get priced out of the most ideal areas.

Related: Looking at Real Estate in This Challenging Investing Climate (2015) – Real Estate Tax Compared to Rental Income in Several Cities in the USA – Home Values and Rental Rates

Why am I selling my house given my belief that the long term investment return on holding it would be very good? Not for investment reasons but for personal finance reasons. I own a second rental property in Arlington that I will be keeping. I have too much of my financial net worth tied up in houses in Arlington. Also while I have a positive cash flow on the rental it is fairly small given how much net wealth it represents. If the price I can receive not doesn’t meet my target I will just rent it out again (and probably take out a line of credit in order to aid my overall cash flow position). But I will continue to try and sell it even though I think it will reduce my long term investment gains.

Given my personal financial position keeping it just puts too much of the portfolio in real estate in Arlington. I might retain that position for a year or couple years, but I am willing to get out of it and provide the purchaser what I think will be a very good long term investment in order to rebalance my portfolio (and move into a much more passive investment that doesn’t have the annoyance of a rental property).

Comments