Amazon to pause construction at HQ2 in Arlington

But then the pandemic arrived and workers stayed home. More recently, Amazon’s business suffered a decline because of overexpansion. Since then, it’s laid off nearly 20,000 corporate employees and slowed hiring and growth at its warehouses. Amazon reported an annual loss last year and cut back on expansion plans for its warehouses.

Now, that’s adding delays to construction in Arlington — although area officials maintain that they will nonetheless see the benefits of millions in incentives that they promised to Amazon. “I don’t believe this news puts at risk the benefits that Arlington has sought 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 plans in June to formally open Met Park, the first phase of construction in the county. But PenPlace, a larger project 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 will have space to 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 buildings. Cristol, the county lawmaker, said she believes that 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 site is unclear. Amazon spokeswoman Rachael Lighty said the company is moving ahead with preconstruction activities such as filing permits, although a final timeline for the overall PenPlace project is still being determined.

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

Big tech companies, including Facebook, Google and Microsoft, 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 also 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.

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

The news is 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 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 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.

Amazon announced last month that it would require workers 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.

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But 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.

The county is facing record-high office vacancies of more than 22.1 percent, posing a major fiscal challenge to a jurisdiction that relies 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 that Cristol believes Amazon is still committed to building, though it is unclear if construction delays will slow that commitment.

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 dollars as it met hiring and occupancy goals.

But the coronavirus pandemic had already been putting that plan into question. Amazon declined to apply 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 as well as on expected increases in local hotel stays stemming from 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 its arrival three years ago.

The tech industry’s growth has abruptly slowed after a decade of rapid growth, bolstered by the gains many of the companies experienced during the pandemic. But the boom times ended in the last year, after a period of sinking stock prices and slowing revenue growth. Companies instituted hiring freezes and cut some perks before laying off tens of thousands of workers.

This story is developing and will be updated.

Caroline O’Donovan contributed to this report.