Amazon HQ2 was thought up pre-pandemic, but the world is hybrid now

Amazon’s second headquarters was supposed to supercharge its new neighborhood in Northern Virginia.

In exchange for thousands of dollars from state and local officials, the tech giant promised to build shiny glass towers and fill them with well-paid software engineers, who would patronize local businesses and boost tax revenue. Architectural renderings showed bustling sidewalks in this area just outside Washington, D.C., filled with pedestrians and cyclists—the kind of lively urban landscape that could attract other companies and even more investment.

But as she peered outside her Arlington storefront to the company’s construction site on one recent, cloudless afternoon, Grace Park was having trouble seeing how that idea could ever come to life.

“I don’t think it’s going to get much busier than this,” said Park, who has operated a dry-cleaning business here since 2017, the sidewalk empty save for some workers pouring concrete and planting shrubs. “Why build more offices if people aren’t going to come?”

After the tech giant said last month that it would be delaying some construction at this massive new Northern Virginia campus, it’s a question that urbanists, economists and others in the neighborhood have been asking, too. (Amazon founder Jeff Bezos owns The Washington Post.)

Amazon first announced its plans in fall 2018, but the pandemic has thrown them into disarray: White-collar workers traded their commutes for their living rooms. The tech giant shifted from rapid expansion to laying off tens of thousands of employees. Now, as it seeks its first round of subsidies from Virginia, critics say, it stands to be rewarded with taxpayer dollars for building something that has already become obsolete.

“We have a mismatch of intent and strategy,” said Jim Russell, a geographer who chairs the Virginia Statewide Community Land Trust. “HQ2 is infrastructure for an economic era that no longer exists.”

Company executives and local elected officials have insisted the economic benefits of bringing in a heavy-hitter such as Amazon were always supposed to come gradually. Its employees will be required to commute in three days a week beginning next month, including thousands who will work at two 22-story towers that are set to open in June.

A fenced-off patch of dirt down the street is still supposed to turn into another three office buildings and a futuristic glass building called the Helix. Construction is moving ahead on a host of transit projects and a new graduate school campus, and neighborhood boosters say a healthy mix of apartment buildings and ground-level retail in the works will continue attracting people to the area they call “National Landing.”

“The benefits and the progress made to date have been propelling our area into one of the most exciting urban transformation stories in the D.C. region,” said Tracy Sayegh Gabriel, president and executive director of the National Landing Business Improvement District. “Amazon has been a major catalyst and an accelerator.”

Yet for people like Park, the dry-cleaning business operator, the view from the window is ultimately a sign of what happens when an area seemingly pins its economic hopes on just one company. The daily foot traffic and transformed neighborhood she has been awaiting now seem like they might be a little further away.

“Maybe it was too good to be true: We had this silver bullet that was going to drive the re-engineering of this area that so many people hoped for,” said Mark Muro, a senior fellow at the Brookings Institution, who studies the digital economy. “That may take longer now.”

Amazon’s 2018 announcement that it would be coming to Arlington. Va., capped off a year-long beauty pageant in which metro areas across North America—including Indianapolis—competed to attract the company’s second headquarters.

Some cities offered to pay the company as much as $6 billion, but Northern Virginia managed to win the prize with a comparatively modest bid: It offered up to $773 million in economic incentives that hinged on concrete metrics of the company’s local impact.

Arlington County, for example, had been expecting to pay Amazon a few million dollars by now on the condition that the tech giant would occupy a growing amount of office space and increase tax revenue from hotel stays. Since that boost never materialized, county officials have not paid a penny to Amazon.

“In terms of what we’re getting, it’s quite a lot,” County Board Chair Christian Dorsey (D) said in a news briefing last month. “And in terms of what we’re giving, it’s what we always intended to give in order to build out Arlington and make it vibrant and strong.”

But even these more shrewd incentives did not appear to consider a pandemic-era future in which workers would only come to the office a few days a week.

The deal that was approved by local officials does not define what it means for Amazon to “occupy” an office beyond engaging in “active use” of that space. Cara O’Donnell, a spokeswoman for the county’s economic development office, said the county will verify this clause by confirming the company has obtained all necessary occupancy permits, but it will not consider how often buildings are physically full.

Virginia’s part of the deal was more substantial. State officials committed to paying the company $22,000 for each of the first 25,000 jobs it created at HQ2. These workers needed to be “principally located” at the new corporate campus in Arlington, according to the 25-page contract, but where they would work was not further defined in that document.

“When this was done, the popularity and the success of working at home was maybe not as clear to us now,” said Democratic Virginia state Del. Mark D. Sickles, of Fairfax County, who sits on the state legislative commission that negotiated the deal in 2018. “We’ve got to make sure the incentive is not going to pay for people who are still in Seattle.”

Amazon spokesman Zach Goldsztejn said that while company declined to request any payments from Virginia during the first three years of the pandemic, it recently submitted an application to receive incentives for 6,939 new jobs. That means the company could receive nearly $153 million by September 2026 if it maintains those jobs.

A 2019 amendment to state code allows hybrid and fully remote workers who are Virginia residents to be counted toward incentive deals such as the ones negotiated with Amazon, although it does not address those who live in nearby Maryland or Washington, D.C. Amazon has not yet enforced a company-wide return-to-office policy, for now leaving the decision up to individual teams and managers until it moves to the three-days-a-week policy next month.

The subsidies from Virginia are supposed to reflect progress toward hiring goals through last December. Goldsztejn, the Amazon spokesman, said that of 8,000 new jobs filled in Arlington, the company only sought incentive payments for positions that align with the terms of its deal with Virginia.

Nicole Hansen, a spokeswoman for the Virginia Economic Development Partnership, said state officials will count employees living outside the commonwealth who had hybrid schedules for those payments as long as they “physically report to the company’s facility on a regular basis,” or at least three days a week.

Company executives do anonymously track how often employees go into the office, including in Arlington, but Amazon declined to share that data with The Post.

Greg LeRoy, executive director of the watchdog group Good Jobs First, said those impending Virginia payouts make little economic sense given Amazon’s hybrid work policy as well as the objectives laid out by local and state officials.

“They’re saying, ‘We want growth in Virginia. We want the job increases in Virginia. We want the ripple effects in Virginia,'” said LeRoy, who has been critical of the deal. “But if people are telecommuting, then some of those benefits go away.”

Remote work likely means fewer flights out of the area, fewer restaurant meals in the neighborhood and less retail activity in Arlington, he said. And that’s just for those employees who are living within the commonwealth.

For those commuting in from Maryland or Washington, D.C., there is no written requirement that dictates how often they must come into the office for Amazon to count them in its application for subsidies. (The agency did not immediately respond to questions about when those employees needed to start making that trip.)

That is why LeRoy said state officials needed to go back and rewrite their deal with Amazon to account for the realities of hybrid and remote work.

“Virginia could be paying for Maryland commuters who, for 2022 and perhaps the first four months of 2023, had reported to the office once a month. That’s an entirely possible outcome based on the fine print, as I see it,” he added, “and that would be perverse.”

Across the street from the empty, fenced-off lot where Amazon’s Helix is supposed to go, Gloria Levy and her husband David have spent the past year slinging tacos and cups of creamy oatmeal out of a lime-green food truck.

Tacos Cinco de Mayo, a pandemic passion project for the Colombian couple, became a hit with the construction workers who have been laying plaster and installing wires at Amazon’s future offices, as well as a growing number luxury apartment dwellers in the area.

But business is inconsistent from day to day. On a Wednesday they might go through five pounds of lamb, Levy said, but only see a handful of customers two days later on a sleepier Friday.

“We haven’t been able to set a rhythm,” she said in Spanish. As construction was supposed to shift to the second phase of Amazon’s campus, known as PenPlace, “we thought there were going to be so many more people. Our expectations are going to have to shift.”

Tracy Hadden Loh, a fellow at the Brookings Institution who studies commercial real estate, said a smaller “daytime population” commuting to the neighborhood and shopping at small businesses such as Levy’s food truck is likely to be the most tangible consequence of Amazon’s delays.

She has no doubt that Amazon will be able to innovate and reimagine how to use its office space. The tech giant has long prioritized creating walkable, urban settings for its employees, she said, often experimenting with unusual designs such as the glass Helix planned for Arlington or a set of futuristic spheres in Seattle.

But for local entrepreneurs that had been planning on seeing some more clientele—and for the county officials expecting more tax revenue—the construction delay is a “real impact,” Hadden Loh added.

In February, County Manager Mark Schwartz sounded alarms as he noted that Arlington’s commercial vacancy rate was at a record-high figure: 22.1 percent.

County leaders say filling these offices is critical because the buildings’ assessed value drops when they are empty. Lower assessments mean less commercial property tax revenue for Arlington, which depends on this stream of money to fund a significant chunk of county services.

About a third of Amazon’s leases for office space in Crystal City expires this year, and its landlord—the real estate developer JBG Smith—has said it anticipates 300,000 square feet will be vacated once Amazon opens its first building a few blocks away.

Still, Arlington leaders are not necessarily expecting that Amazon will solve the problem. Local economic development officials have said Amazon’s new campus “will not drastically reduce” the county’s record-high vacancy rate.

Most of the empty office space that needs to be filled is older and less high-end than what the company is set to open soon, County Board member Katie Cristol (D) said, and the construction pause will delay what would initially be a limited boost in tax revenue by only a few years.

David Ritchey, JBG Smith’s chief commercial officer, said he remains confident that his company, which is the major landowner in the neighborhood, can fill any vacant space at its properties.

But whether it can fill that space—and if and when new buildings open—is likely to have ripple effects in the area. Part of Amazon’s deal with Arlington would reinvest any growth in tax revenue in the neighborhood to fund transportation projects near the new campus. But the money only gets passed on if that revenue exceeds a $4.8 billion baseline.

That hasn’t happened yet, so “no incremental tax revenue has been set aside for capital projects,” said O’Donnell, the spokeswoman for Arlington’s economic development office.

Sitting just a few yards from the Levys’ taco truck, Commonwealth Joe owner Robbie Peck expressed few worries about the future of his neighborhood as he gazed at the street.

He opened his corner coffee shop in 2016, when parts of the area were filled with empty warehouses or were entirely undeveloped. A year later, he moved into the apartment building right next door to the store, effectively landing a front-row seat to watch those lots fill up and Amazon’s new office towers rise in the air.

Peck believes people want to return to the office—he sells cold brew to offices, so he often checks data about rising key-card swipes—and he said it’s only a matter of time before the towers nearby are filled with workers.

“I’m sure the view will change as more buildings come up,” he said in his apartment building’s lobby, looking at the empty lot through the window, “or as they don’t. . . . They’re still going to need that office space, even if it may change form.”

Even if all Amazon employees are not around eight days a week, his shop is already busiest on Friday through Sunday, when residents—not workers—stop by to grab their coffee, he noted.

Sayegh Gabriel, of the National Landing Business Improvement District, said that a long list of other development projects will continue drawing different kinds of people to the neighborhood.

Virginia Tech is well underway on the build out of a new graduate engineering campus in Alexandria. New residential developments are underway, as is an indoor/outdoor dining pavilion and transportation projects such as a pedestrian bridge connecting the area to Reagan National Airport.

Ben D’Avanzo, who has lived in nearby Aurora Highlands since 2017, said he has become used to the sight of construction from his townhouse and the sound of heavy machinery during walks around the neighborhood.

A member of the Crystal and Pentagon Cities Council (CPCC), a county advisory group, he is most excited by the infrastructure projects that will add bike lanes and make the area more walkable.

But he worries about the effects of Amazon’s construction pause on those projects, in strict financial terms as well as more symbolic ones.

“PenPlace is this big giant vacant lot right in the middle of Pentagon City. It’s a pretty symbolic hole that was about to be filled,” he said. “Now that it isn’t going to be filled anytime soon, it really makes me wonder what other things are not going to happen for our neighborhood that had been promised.”