Amazon pauses construction on 2nd phase of HQ2 campus in Virginia

Amazon is pausing construction of its second headquarters in Virginia following the biggest round of layoffs in the company’s history and its shifting plans around remote work.

The Seattle-based company is delaying the beginning of construction of PenPlace, the second phase of its headquarters development in northern Virginia, Amazon’s real estate chief John Schoettler said in a statement. He said the company has already hired more than 8,000 employees and will welcome them to the Met Park campus, the first phase of development, when it opens 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,” Schoettler said.

Schoettler also emphasized the company remains “committed to Arlington” and the local region, which Amazon picked—along with New York City—to be the site of its new headquarters, known as HQ2, several years ago. More than 230 municipalities had initially competed to house the projects. New York won the competition by promising nearly $3 billion in tax breaks and grants, among other benefits, but opposition from local politicians, labor leaders and progressive activists led Amazon to scrap its plans there.

In February 2021, Amazon said it would build an eye-catching, 350-foot Helix tower to anchor the second phase of its redevelopment plans in Arlington. The new office towers were expected to welcome more than 25,000 workers when complete. Amazon spokesperson Zach Goldsztejn said those plans haven’t changed and the construction pause is not a result—or indicative of—the company’s latest job cuts, which affected 18,000 corporate employees.

The layoffs were part of a broader cost-cutting move to trim down Amazon’s growing workforce amid more sluggish sales and fears of a potential recession. Meta, Salesforce and other tech companies—many of which had gone on hiring binges in the past few years—have also been doing the same.

Amid the job cuts, Amazon has urged its employees to come back to the office. Last month, Amazon CEO Andy Jassy said the company would require corporate employees to return to the office at least three days a week, a shift from the prior policy that allowed leaders to make the call on how their teams worked. The change, which will be effective on May 1, has ignited some pushback from employees who say they prefer to work remotely.

Goldsztejn said the company is expecting to move forward with what he called pre-construction work on the construction in Virginia later this year, including applying for permits. He said final timing for the second phase of the project is still being determined.

When Virginia won the competition to land HQ2, it did so less with direct incentives, and more with promises to invest in the regional workforce, particularly a graduate campus of Virginia Tech that is currently under construction just a couple of miles from Amazon’s under-construction campus in Crystal City.

Still, there were significant direct incentives. The state promised $22,000 for each new Amazon job on the condition that the average worker salary for those new jobs is $150,000, annually. But those incentives—about $550 million for 25,000 projected jobs—are not supposed to be paid out until 2024 at the earliest.

Arlington County also promised Amazon a cut of its hotel-tax revenue on the theory that hotel occupancies would increase significantly once Amazon builds out its campus. That incentive, projected initially at about $23 million, is dependent on how many square feet of office space Amazon occupies in the county.

Suzanne Clark, a spokeswoman for the Virginia Economic Development Partnership, said state officials are not concerned about Amazon filling its commitments. The 8,000 workers currently employed at the new headquarters is already running about 3,000 ahead of what was expected at this point, she said.

She said no incentive money has been paid out yet to Amazon. The company is scheduled to submit its first application for payment on April 1, which will be based on the job creation from 2019 through 2022. Amazon would then receive its first grant payment on or after July 1, 2026.

Arlington County Board Chair Christian Dorsey said during a news briefing Friday that Amazon hasn’t earned any of the performance-based incentives and it has not received any funds from the county. He said it’s unclear how long the delay might be, but it’s “not really disappointing” since officials there had initially projected the buildout to be completed by 2035. Amazon had previously said it planned to complete the project by 2025.

“Amazon is still very much committed—as we understand it—to certainly fulfilling all of their plans and obligations within the window that was envisioned when they struck the deal to come here,” Dorsey said.

Dorsey shared the company notified him about the pause in advance of releasing the information to the public. He said Amazon didn’t provide a reason for the delay, but it wasn’t challenging to guess it was tied to the economic uncertainty in the county.

“They are really trying to take a pause and think about this consciously. And make decisions that not only make sense in light of current conditions but expected future conditions.”