Amazon delays construction on HQ2

Amazon.com Inc. is delaying construction on the second phase of HQ2, its $2.5 billion East Coast headquarters in Arlington County.

The news comes as Amazon plans to open HQ2’s first phase, Metropolitan Park, in June, and as the Fortune Global 500 tech company laid off a record 18,000+ workers amid concerns over slowing revenues and a potential recession.

Amazon had anticipated the groundbreaking for its second phase, PenPlace, to occur this year. While the e-tailer has not offered an updated timeline for construction on PenPlace, Amazon has begun some pre-construction work, including applying for permits, and expects to continue such efforts this year.

In a statement, Amazon Vice President of Global Real Estate and Facilities John Schoettler said, “We’ve already hired more than 8,000 employees in HQ2 and we’re excited to welcome them to our new Met Park campus this June. We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees, and since Met Park will have space to accommodate more than 14,000 employees, we’ve decided to shift the groundbreaking of PenPlace (the second phase of HQ2) out a bit.”

Bloomberg first reported the construction delay.

Amazon originally announced that HQ2 would create 25,000 jobs by 2030, and the company says its hiring goals have not changed.

During the COVID-19 pandemic, Amazon rapidly grew its global workforce, ending 2021 with more than 1.6 million employees, up from 798,000 in the fourth quarter of 2019, according to CNBC. The company began layoffs in November 2022, at the time expected to total 10,000 employees, and in January, that number grew to 18,000, according to The Wall Street Journal. Amazon, which also paused corporate hiring at the same time, is one of several tech giants that have begun large-scale layoffs in recent months, including Google LLC, which cut 12,000 employees, and Meta Platforms Inc., which cut more than 11,000 people.

Amazon has pulled back on other real estate projects over the past year. Citing the need to reevaluate designs for hybrid work environments, Amazon pausing construction in July 2022 on six office buildings in Bellevue, Washington, and Nashville, Tennessee, according to Reuters.

The company has not yet made a decision on whether it will modify its PenPlace plans. Plans for HQ2’s second phase currently include 3.3 million square feet of office and retail space spread across three 22-story buildings, as well as the distinctive spiral Helix building, along with 100,000 square feet of retail space and about 2.5 acres of public space. In April 2022, Arlington County approved the plans for PenPlace, which. include 20,000 square feet for Arlington Community High School.

Amazon purchased the 11-acre development site for PenPlace for $198 million in June 2022 from Bethesda, Maryland-based developer JBG Smith Properties, Amazon’s HQ2 development partner. Unless the Arlington County Board grants an extension, Amazon’s site plan approval will expire on April 23, 2025, if the company has not received a footing to grade permit to construct the second phase’s first building by then. Amazon’s use permits for the proposed public park and high school will also expire on April 23, 2025, if construction or operation has not started by then, according to Arlington County Board agenda documents.

“We continue to work with Amazon to advance plans for PenPlace, and look forward to helping Amazon realize its complete vision for HQ2,” JBG Smith CEO Matt Kelly said in a statement.

HQ2’s roughly 2.1 million-square-foot first phase consists of two 22-story office buildings, about 50,000 square feet of retail space, a park and a 700-person meeting center.

In February, Amazon announced that employees would be required to work in person at least three days a week beginning in May, a divergence from its previous remote work policy. A group of Amazon employees released a petition calling for remote work to continue, according to CNBC.

Amazon is eligible for up to $750 million in incentives from a state economic development package based on its annual hiring goals at a stipulated average annual wage. While the company became eligible to submit its first payment application on April 1, 2020 — reflecting its job creation through Dec. 31, 2019 — and receive its first payment in fiscal year 2024 — which begins July 1, 2023 — Amazon instead submitted a progress report, according to Suzanne Clark, Virginia Economic Development Partnership’s managing director of communications and marketing.

Amazon submitted progress reports in April 2021 and 2022 as well. The e-tailer has until April 1 this year to submit its first application for payment, which would reflect its performance from 2019 through 2022. Amazon would then be eligible to receive its first grant payment in fiscal year 2027, meaning on or after July 1, 2026.

The company said it didn’t want to begin requesting payments until it reached key milestones, like the opening of Met Park, because it intends to be a community partner. In the memorandum of understanding between the state and Amazon, the tech giant’s cumulative job creation goal was 4,983 by Dec. 31, 2022. With 8,000 new jobs so far, Amazon is well ahead of its hiring timeline.

Arlington County Board Chair Christian Dorsey said the delay is not a cause for concern. “As we all negotiate the post-pandemic reality, everyone from every sector is thinking about its long-term plans in a new light, and sadly, we don’t all have all of the answers,” he said, “so it’s not incredibly surprising that Amazon is taking a pause before beginning the second phase of a project for which they haven’t fully opened the first phase.”

Arlington will continue its infrastructure projects around the site, like the 12th Street South Complete Street Project, which will create a streetscape with landscaping, sidewalks, pedestrian ramps and streetlights on 12th Street between Clark and Eads streets. The project will also create center-running transit-only lanes.