Amazon will halt construction at HQ2 in Arlington


Amazon will halt construction on some buildings at the second headquarters it is building in Arlington, the company confirmed Friday, a setback for the e-commerce giant that just years ago promised Northern Virginia an economic boom and more office towers filled with employees.

In a more than year-long competition late last decade, Amazon dangled its so-called HQ2 with tens of thousands of jobs and billions in capital investment. Hundreds of cities across North America applied, offering huge financial incentives to attract the company, and eventually Amazon gave half the price for a site across the river from DC

But then the pandemic came and the workers stayed at home. Recently, Amazon’s business has been in decline due to overexpansion. Since then, it has laid off nearly 20,000 corporate employees and slowed hiring and growth at the warehouses. Amazon reported an annual loss last year and cut back on expansion plans for its warehouses.

Now that’s adding to construction delays in Arlington — even though area officials say they’ll still see the benefits of millions in incentives they promised Amazon. “I don’t think this news jeopardizes the benefits that Arlington has been trying to realize since they made the decision to locate here,” Arlington County Board member Katie Cristol (D) said in an interview.

Amazon has filled more than 8,000 of the 25,000 jobs it projected to fill in Arlington, putting it ahead of its hiring schedule, and in June plans to formally open Met Park, the first phase of construction in the county. But PenPlace, a larger project that has yet to break 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 chief real estate officer, said in a statement. Because Met Park will accommodate more than 14,000 employees, the company had decided to move its groundbreaking PenPlace “out a little 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 over three buildings. Cristol, the county legislator, 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.

But the future of two other offices at that location is unclear. Amazon spokeswoman Rachael Lighty said the company is moving forward with preconstruction activities such as filing permits, although a final timeline for the overall PenPlace project is still being determined.

Amazon will bring more than 25,000 workers to the region when it opens its new headquarters. Experts consider how this could affect gentrification and jobs. (Video: Hadley Green/The Washington Post, Photo: Jackie Lay/The Washington Post)

After a decade of explosive growth, Amazon’s expansion began to slow in the summer of 2022. The company confirmed earlier this year that it was laying off 18,000 workers in its corporate workforce.

Major tech companies, including Facebook, Google and Microsoft, announced major job cuts in recent months as the pandemic boom the companies experienced began to wane. In addition to layoffs, Amazon has also halted the expansion of its logistics network, which the company has acknowledged has added too many warehouses and workers based on the rosy growth outlook caused by the pandemic.

Weak earnings reports show Big Tech’s golden age is fading

Lighty, the Amazon spokeswoman, said the construction pause was not related to any job cuts in Northern Virginia. The construction pause was previously reported by Bloomberg News.

The news is a hit to Arlington’s office market, which has struggled with record vacancy rates, as well as a major setback for Amazon’s once-aggressive commercial real estate plans in the country.

Amazon’s move to pause construction is “not surprising,” said John Mozena, president of The Center for Economic Accountability, a nonprofit advocacy organization in Michigan.

“The reality is that companies are going to do what their managers think is best for them under all kinds of circumstances,” he said. “And the government’s ability to influence that is pretty minimal at best.” He pointed out that Amazon already pulled out of another planned headquarters in New York City after facing significant pushback 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 “adjusting to current market conditions.”

The labor market in the construction industry remains tight, and some supply chains remain constrained, he said, putting pressure on large construction projects. Amazon is pausing to see what the “new normal” in business demand will look like, he said.

Amazon announced last month that it would require workers to work from the office at least three days a week, after previously giving more leeway to departments to decide what worked best for them. The decision pleased officials in downtown Seattle, where Amazon has its first headquarters, who hoped it could revitalize the area. The neighborhood has had subdued foot traffic since the pandemic began.

Amazon begins extensive layoffs in company ranks

But the company has also signaled its need for smaller office space as growth slowed and working from home became more common. The Seattle Times reported that the company is letting a lease for one of its downtown Seattle offices lapse and moving about 2,000 workers to existing offices.

The “megablock” that houses PenPlace is one of the largest undeveloped parcels in the DC 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.

The county is facing a record vacancy rate of more than 22.1 percent, posing a major fiscal challenge for a jurisdiction that relies on commercial properties for about half of its tax revenue.

Amazon had also agreed to provide space on the site to house Arlington Community High School, whose student body is largely made up of working adults, and offer limited use of conference rooms at the facility to the public. That facility will be included in the first corporate building that Cristol believes Amazon remains committed to building, though it’s unclear whether construction delays will slow that commitment.

To bring Amazon’s second headquarters to Virginia, state and local officials approved a financial incentive agreement in 2019 that would give the company up to $573 million in public dollars as it met hiring and occupancy goals.

But the coronavirus pandemic had already called that plan into question. Amazon refused to apply for the first set of these pay-only grants from Virginia, delaying all payments from the state until 2026.

Local incentives, meanwhile, are based both on Amazon occupying certain amounts of office space, as well as on the expected increase in local hotel stays as a result of the company’s activity. Because Arlington’s hotel tax revenue had not yet reached pre-pandemic levels, the county has yet to pay anything to the company since it arrived three years ago.

The technology industry’s growth has slowed sharply after a decade of rapid growth, boosted by the gains many of the companies experienced during the pandemic. But the upswing came to an end last year, after a period of falling share prices and slowing income growth. Companies imposed hiring freezes and cut some benefits before laying off tens of thousands of workers.

This story is a work in progress and will be updated.

Caroline O’Donovan contributed to this report.

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