The Washington Post

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.

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 ?? Jahi Chikwendiu/the Washington Post ?? A scale model of Crystal City, which includes the buildings planned to make up Amazon’s second headquarte­rs, at the visitor center at JBG Smith in Arlington, the developer for the project. County officials are confident the e-commerce giant’s plans eventually will resume.
Jahi Chikwendiu/the Washington Post A scale model of Crystal City, which includes the buildings planned to make up Amazon’s second headquarte­rs, at the visitor center at JBG Smith in Arlington, the developer for the project. County officials are confident the e-commerce giant’s plans eventually will resume.

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