Amazon’s HQ2 aims to show technology can boost cities. It is now on hiatus

After a dramatic competition that pitted US cities against each other, years of contentious planning and claims of unwavering commitment despite the pandemic, Amazon now says plans for a second headquarters, also known as HQ2, are on hold. The company said today it will delay construction on more than half of the millions of square feet of campus space planned for Arlington, Virginia, including a twisted tower intended to become a signature landmark for the city.

Amazon, which is still in the process of laying off more than 18,000 corporate workers, did not set a new date for construction to resume in Arlington, across the Potomac River from Washington, DC. Arlington County Chairman Christian Dorsey says the county “recently” learned of the planned hiatus and does not know when construction will resume.

Amazon also declined to provide any timeline for resuming construction. “Our second headquarters has always been a multi-year project, and we remain committed to Arlington, Virginia and the Capital Region,” said John Schoettler, Amazon’s vice president of global real estate and facilities.

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Amazon has pledged to use the project, whose first phase already dominates the Crystal City area where it is located, to eventually bring at least 25,000 high-wage workers to Virginia. Arlington and other cities, including Atlanta, Georgia, and Austin, Texas, competed to win the project in part to secure a tranche of elite workers and associated tax revenue. How many people or new tax dollars Amazon will bring to Arlington, and on what timeline, is now unclear.

Amazon originally planned to build its second headquarters in two phases. The first featured two large structures housing around 2 million square feet of office space, and the second another three office buildings and a centerpiece tower called the Helix, a structure that resembles a cross between a custard and the poop emoji.

HQ2’s first phase, known as Metropolitan Park, will open on schedule in June this year, Amazon says. But the company no longer has a construction date for the larger second phase and its signature swirl, all of which were originally planned to include about 2.8 million more square feet of office space and 115,000 square feet of retail.

This ratio can theoretically be changed. While Amazon spokesperson Zach Goldsztejn says Amazon’s long-term commitment remains the same, the construction pause will give the company more time to study how best to use the space. In February, the company announced that it would end its flexible, fully telecommuting policy and require workers to be in the office three days a week starting May 1. The regime change will likely change how employees use the company’s office premises.

“It’s not incredibly surprising that Amazon is taking a break before starting the second phase,” Dorsey said on a briefing today about the company’s project. “If you look at the world, there is a lot of uncertainty about what lies ahead. Everyone from every sector is thinking about their long-term plans in a new light, and unfortunately we don’t have all the answers.”

Amazon had already halted construction of planned office towers in Bellevue, Washington, and Nashville, Tennessee, in 2022. Other tech companies have also slowed real estate commitments: Microsoft recently halted planned development of another headquarters in Atlanta, Georgia, and Alphabet, Meta, and others have leased office space.

Office property markets generally remain depressed in major cities as telecommuting and hybrid working have made it difficult for companies to justify spending on commercial space. In San Francisco, for example, office vacancy rates rose as high as 27 percent by 2022, compared to around 5 percent or lower in the years before the pandemic.

Arlington has been battling its own unemployment problem, and the Amazon break could worsen economic conditions for the county. Local leaders have touted Amazon as a revitalizing agent for the office-drone-dependent region.

Unlike San Francisco and many other cities, which also derive income from other sectors such as tourism, Arlington relies on offices and office workers, in part because of its history as a home to Pentagon office buildings. Amazon’s headquarters was meant to boost efforts to transform Arlington’s stodgy reputation, making it a more attractive place for people to not only work from, but live in and visit.

Despite Amazon’s construction hiatus, Arlington’s Dorsey remains optimistic about the company’s commitments. “Amazon’s focus on returning workers to the office three days a week is incredibly important. I am happy that Amazon is moving forward with something firm and concrete and I hope it is a model for others, he said, stressing that he is very focused on the work of bringing workers back to the office to stimulate economic revitalization.

Before the pandemic, the incentives Arlington offered Amazon for its second headquarters were structured based on the assumption that the Amazon project would jump-start the Arlington economy. The theory was that the more office space Amazon occupied, the more hotel tax revenue would increase in the county. But Amazon already occupies more than 1 million square feet of space in Crystal City and has hired 8,000 people for its HQ2 location — and hotel revenue hasn’t increased. Metro ridership for the area’s local stations has also failed to recover to pre-pandemic levels.

With the hiatus in construction, Amazon seems to recognize that their own needs may have changed. For Arlington, the delay could slow or even halt efforts to showcase the area as a trendy place to live and work. “We’re concerned, but not surprised,” Eric Cassel, president of the Crystal City Civic Association, told WIRED. “It is clear that the Helix is ​​an important design element for the area and we hope the delay is not too long.”

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