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Why the Midwest could make sense for Amazon's new headquarters

  • Amazon has yet to confirm a location for its second base, although it said it prefers cities or suburban locations with more than 1 million people.
  • "You've got to move to a lower-cost city, ... a city that has a lot of space for big skyscrapers. I definitely think you're going to see somewhere in the Midwest [with] local universities that can support this huge amount of demand for technology employees," said James Thomson, former head of Amazon Services who is now an e-commerce consultant.
  • Chicago Mayor Rahm Emanuel and Amazon CEO Jeff Bezos reportedly have had several conversations.

After Amazon announced plans to establish a second headquarters in North America, a source familiar with the talks told CNBC that Chicago Mayor Rahm Emanuel and Amazon CEO Jeff Bezos have had several conversations.

"Chicago's unmatched workforce, world-class universities and unparalleled access to destinations throughout the world make it the perfect headquarters location for companies large and small. That's also why Chicago has led the nation in corporate relocations for the last four years," a city spokesperson told CNBC.

Chicago is one of several cities that have been floated as a possible spot for Amazon, which is now headquartered in Seattle. Amazon has yet to confirm a location for its second base, although it said it prefers cities or suburban locations with more than 1 million people.

A location in the Midwest could make sense for several reasons, said James Thomson, former head of Amazon Services who is now an e-commerce consultant.

"Right now we have a situation in Seattle where there are 9,000 job openings, there are increasing rents on both residential and commercial real estate at levels that are basically unsustainable," Thomson told CNBC's "Squawk Alley" on Thursday.

"You've got to move to a lower-cost city, you've got to move to a city that has a lot of space for big skyscrapers," he said. "I definitely think you're going to see somewhere in the Midwest, where there's a lot of technology capabilities, local universities that can support this huge amount of demand for technology employees."

"All of the other major Silicon Valley companies have also set up shop in Seattle. They're all competing for the same employees. If Amazon puts a facility in another location that doesn't have that same kind of demand on high-tech employees, you're going to see potentially a two- to three-year advantage that Amazon can enjoy as they start to ramp up."

If Amazon opts for a location in America's bread basket, it would not be the only big company investing outside of Silicon Valley. Other companies, such as Boeing, have also looked beyond Seattle amid rising costs over the past two decades.

Apple has been expanding in Amazon's backyard. But CEO Tim Cook is fresh off a visit to Apple's Midwest facilities, including the site of a new data center in Iowa. Amazon, in addition to its e-commerce facilities, also has data centers for its leading web services products in Ohio and Virginia.

Apple supplier Foxconn has agreed to invest in a manufacturing facility in Wisconsin, and lawmakers have proposed up to $3 billion in incentives.

The Foxconn deal was backed by President Donald Trump, who has been especially critical of Bezos' ownership of the Washington Post, which is a separate entity from Amazon. Nonetheless, when asked if the fact that Wisconsin, a swing state, voted for Trump during the election factored into the Foxconn deal, an official said there were "a lot of factors" such as workforce and relationship with state leadership that factored into the decision.

Amazon has not specifically mentioned taxes but has said it is looking for a "business-friendly environment" and communities that "think big and creatively when considering locations and real estate options."

"Amazon's very good at making sure they extract as much tax dollars as possible," said Thomson. "For the right state, they will step up, and they will have to pay dearly for it."

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