Work on part of HQ2 paused
ARLINGTON PROJECT ON INDEFINITE HOLD Amazon move comes after slowdown, layoffs
Amazon will pause construction of some buildings at the second headquarters it is building in Arlington, the company confirmed Friday, a setback for the e-commerce giant that just a few years ago promised Northern Virginia an economic boom and multiple office towers filled with employees.
In a more than year-long sweepstakes late last decade, Amazon dangled its additional headquarters campus with 50,000 jobs and billions of dollars in capital investments. Hundreds of cities across North America applied, offering hefty incentives to attract the company, and eventually Amazon gave half the prize — $2.5 billion — to a site just across the river from D.C.
But then the pandemic arrived in March 2020 and kept workers home. More recently, Amazon’s business suffered a decline because of overexpansion. Since then, it’s laid off 18,000 corporate employees and slowed hiring and growth at its warehouses.
Now, that’s slowing construction in Arlington — although area officials maintain that the millions of dollars they promised to Amazon are still worth it. “We’re going to ultimately see all of the benefits that we envisioned at the beginning,” said Arlington County Board Chair Christian Dorsey (D). “It’s just going to take longer.”
Dorsey, who noted that the project was never supposed to be complete before 2035, added that he was not surprised by Amazon’s pause. “Everyone from every sector is thinking about plans in a new light,” he said.
Amazon has hired more than 8,000 of the 25,000 employees it projected to add in Arlington and plans in June to formally open
Met Park, its first phase of construction in the county. But PenPlace, a larger project up the street that has not yet broken ground, will be put on hold indefinitely. (Amazon founder Jeff Bezos owns The Washington Post.)
“We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees,” John Schoettler, Amazon’s real estate chief, said in a statement. Because Met Park can accommodate more than 14,000 employees, the company had decided to shift the groundbreaking of Penplace “out a bit.”
Plans for the Penplace site, just a stone’s throw from the Pentagon, include more than 3 million square feet of office space spread across three 22-story buildings. Arlington County Board member Katie Cristol (D) said she believes the company is committed to building at least one office tower, as well as its planned futuristic glass Helix and 2.5 acres of open space.
The future of two other office buildings in that 12.5-acre project may be less clear. Amazon spokeswoman Rachael Lighty said that no changes have been made besides shifting the anticipated start of the groundbreaking at Penplace, and that the company is moving ahead with preconstruction activities such as filing permits. The company has until April 2025 to begin construction, per county approvals last year.
Amazon as a whole has been slowing its pace of growth in the past several months. After a decade of explosive development, the company’s expansion began to wane in the summer, and it confirmed earlier this year that it was laying off 18,000 workers in its corporate workforce.
Big tech companies, including Facebook, Google and Microsoft, also announced major job cuts in the past several months as the pandemic boom the companies experienced began to slow. In addition to layoffs, Amazon has paused the expansion of its logistics network, which the company has acknowledged added too many warehouses and workers based on the rosy growth outlook caused by the pandemic.
Lighty, the Amazon spokeswoman, said the construction pause was not related to any job cuts. The company had projected to fill about 7,650 jobs in Arlington by the end of 2023, which means that current hiring is ahead of schedule. (The pause was earlier reported by Bloomberg News.)
But the news is nonetheless a hit for Arlington’s office market, which has been struggling with record-high vacancy rates, as well as a major backslide for Amazon’s once-aggressive commercial real estate plans in the country.
Amazon’s move to pause construction of its second headquarters is “unsurprising,” said John Mozena, president at the Center for Economic Accountability, a nonprofit advocacy organization in Michigan.
“The reality is that businesses are going to do what their leaders think is best for them in any sort of circumstance,” he said. “And the ability of governments to influence that is pretty minimal at best.” He pointed out that Amazon already backed out of another planned headquarters in New York City in 2019 after facing significant backlash from politicians and community leaders there.
But Terry Clower, director of the Center for Regional Analysis at George Mason University, said the construction pause is just a sign that Amazon is “adapting to current market conditions.”
The labor market in the construction industry is still tight, and some supply chains are still constrained, putting pressure on major construction projects, he said. Amazon is pausing to see what the “new normal” in business demand will look like, he said.
Rep. Don Beyer (D-VA.), who represents Arlington in Congress, said in a statement that the news was “obviously concerning” but that the impact was not grave as some might fear.
“It is clear Amazon is not immune to economic pressures,” he added. “The company should promptly update leaders and stakeholders about any new major changes in this project, which remains very important to the capital region.”
Amazon announced last month that it would require employees to work from the office at least three days per week, after previously giving more latitude to departments to decide what worked best for them. The decision pleased officials in downtown Seattle — where Amazon maintains its first headquarters — who hoped it could reinvigorate the area. The neighborhood has had subdued foot traffic since the pandemic began.
Yet the company has also signaled its need for less office space as its growth slowed and work from home became more common. The Seattle Times reported that the company is letting a lease lapse for one of its offices in downtown Seattle and moving about 2,000 workers into existing offices.
The “mega-block” housing Penplace is one of the largest undeveloped parcels in the D.C. area’s inner urban core. Arlington officials had touted Amazon’s project as a way to bring office workers back to a neighborhood long filled with empty office buildings.
JBG Smith, the developer for Amazon’s new headquarters, has said it expects Amazon to vacate 300,000 square feet it has leased from the real estate company once Met Park opens. (Lighty said in a statement that the company may retain some additional space there, pending its needs.)
The county is facing recordhigh office vacancies of more than 22.1 percent, posing a major fiscal challenge to a jurisdiction that traditionally has relied on commercial properties for about half its tax revenue.
Amazon had also agreed to provide space on-site to house Arlington Community High School, whose student body largely consists of working adults, and offer limited use of conference space at the facility to the public. That facility will be included in the first corporate building, and Amazon will cover additional lease payments for the school district if needed.
Cristol said the company also plans to move ahead with new underground parking, a bike path, and street enhancements adjacent to Penplace.
“They continue to deliver on their commitments to Arlington,” Cristol said. The Met Park development “will deliver on the community benefits that were negotiated and are a core part of why this investment in Arlington is going to be a great thing.”
To bring Amazon’s second headquarters to Virginia, state and local officials approved an economic incentives deal in 2019 that would give the company up to $573 million in public money as it met hiring and occupancy goals, or $773 million if it surpasses them.
But the coronavirus pandemic had already been putting that plan into question. Amazon did not file paperwork for its first set of those pay-as-you-go grants from Virginia, delaying any payments from the state until 2026.
Local incentives, meanwhile, are based both on Amazon occupying certain amounts of office space and on expected increases in local hotel stays stemming from the company’s activity. Because Arlington’s hotel tax revenue had not yet reached prepandemic levels, the county has yet to pay anything to the company since its arrival three years ago.