Amazon leases Manhattan office space for 1,500 employees

Dive Brief:

Amazon signed a lease for 335,000 square feet of office space in Manhattan that will have more than 1,500 employees, joining the expansion of other tech companies in one of the world's busiest marketing and media hubs, The Wall Street Journal reported. The agreement is the e-commerce giant's biggest expansion in New York City since it abandoned plans last February to open a second headquarters in Long Island City.
Amazon is renting space in the new Hudson Yards neighborhood that has attracted tenants such as Facebook, Google and AT&T's WarnerMedia. Amazon didn't receive any special tax credits or other incentives to lease the space, and didn't run a contest among various cities for the best deal, as it had done with last year's "HQ2" search, according to the Journal.
The news coincides with a separate report from the Journal that Facebook has entered into talks to lease 700,000 square feet just blocks away, a move that would position the social media giant as one of the largest corporate tenants in New York City when combined with its other leases.

Dive Insight:

While Amazon's latest planned expansion in New York City isn't as ambitious as it prior effort to establish a second headquarters in the area, it still signals that the company recognizes the importance of having a stronger presence in a major media hub that could support its fast-growing advertising business and its need for technology experts.

The company clearly isn't alone in building a bigger presence in New York City: Advertising, media and tech companies have boosted demand for Manhattan office space more than any other industry this year, according to data from real-estate services firm Newmark Group cited by the Journal.

The focus on New York City is an acknowledgement that the city has a desirable talent pool of tech workers, including people who specialize in the high-growth programmatic advertising business that relies on computerized bidding for media placements. Amazon's new lease suggests the appeal of the city is so strong that major companies see a need to be there even without big tax incentives.

New York's city and state governments previously offered $3 billion in financial incentives for Amazon to bring 25,000 news jobs to its planned HQ2, but opposition from some activists and politicians over the incentives led Amazon to withdraw that plan.

While Amazon already has more than 8,000 workers at its tech hub and fulfillment centers in New York City, it needs to build its New York workforce to compete more effectively with Facebook and Google — the so-called "duopoly" that has a combined market share of 61% of the U.S. digital ad market and is collectively adding thousands of employees in the region. Google expects to add 7,000 employees in New York over the next decade, while Facebook will have enough office space to handle 14,000 employees after signing two more leases this year, the Journal reported.

Ad agencies and ad-tech companies face a quandary with Amazon's expansion, considering that the e-commerce company frequently has eschewed agencies for direct brand relationships. While it's unclear how many of its 1,500 employees will work in its ad operations, it's likely that Amazon will compete more directly with Madison Avenue for tech talent. Ad agencies already have sought to sharpen their digital expertise amid a growing threat from consulting firms like Accenture and Deloitte that have boosted their data-driven marketing services.

Amazon's yearly ad sales growth accelerated to more than 45% in Q3, outpacing the 34% and 37% gains seen during the first two quarters of the year, the company said during a conference call with analysts in October. The e-commerce company groups ad sales with "other" revenue, which reached $3.59 billion during the quarter. While that amount is a fraction of Google's $33.9 billion and Facebook's $17.4 billion, Amazon showed the fastest growth from a smaller base during the quarter.