Amazon Delays Construction Of HQ2 In Northern Virginia
Amazon has put on ice plans for a 3.2M SF expansion of its second headquarters in Arlington, Virginia.
As the Seattle-based tech giant has continued its aggressive cost-cutting campaign, it no longer expects to start construction as planned on Phase 2 of Amazon HQ2, dubbed PenPlace, the company confirmed in a statement.
The project calls for three 22-story office buildings and a signature Helix tower in the Pentagon City neighborhood, which was rebranded as National Landing as part of Arlington's bid for Amazon's headquarters. The company received approval for the project in April.
The tech giant is getting ready to move later this year into 2.1M SF of offices, dubbed Met Park, developed for it by JBG Smith. Amazon is slated to vacate 300K SF of offices it leases from the Bethesda-based REIT this year as it completes the move. It acquired the Met Park site from JBG Smith for $155M in 2020 and paid $198M for the PenPlace site in June.
“We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees,” Amazon Vice President of Global Real Estate and Facilities John Schoettler said in a statement. “And since Met Park will have space to accommodate more than 14,000 employees, we’ve decided to shift the groundbreaking of PenPlace out a bit.”
Amazon has committed to spending $2.5B and hiring 25,000 workers at its Arlington campus, and it has said it already employs 8,000 workers in the area. It could earn $550M in incentives if it hits those targets by 2030 and could make up to $750M in incentives by 2039 if it hires an additional 12,850 people, the Washington Business Journal reports.
“Our second headquarters has always been a multi-year project, and we remain committed to Arlington, Virginia, and the greater Capital Region — which includes investing in affordable housing, funding computer science education in schools across the region, and supporting dozens of local nonprofits,” Schoettler said in his statement. “We appreciate the support of all our partners and neighbors, and look forward to continuing to work together in the years ahead.”
Amazon grew at breakneck speed as demand for e-commerce exploded with the onset of the pandemic. But last year it admitted it expanded too fast and hired too many people, kicking off a cost-cutting campaign.
In January, Amazon CEO Andy Jassy announced the company would cut more than 18,000 jobs this year. It has canceled, closed or delayed 99 warehouse projects spanning 32.3M SF since last year, according to MWPVL International.
Amazon hired Shannon Loew as its new vice president of corporate real estate in January, a move that the Austin Business Journal reported was part of a long transition that would lead to Schoettler’s retirement. Schoettler has overseen Amazon’s 40M SF-plus global portfolio of office space and was heavily involved in the process of selecting Arlington and (briefly) Queens, New York, for additional headquarters facilities in 2018.
While the company is delaying construction on over half of its planned HQ2 project, it is also pushing forward on requiring its workers to report to offices three days a week starting in May.
Amazon isn't the only tech giant to put ambitious development plans on hold. Microsoft halted the planning process last month on the 90-acre, 15,000-worker campus it was pursuing in Atlanta, Bisnow first reported.
News of PenPlace's pause sent JBG Smith's stock price tumbling to an all-time low Friday morning, Bloomberg reported. The companies sent out a joint press release Friday afternoon confirming the first phase of HQ2 would open this summer.
“We are greatly encouraged by Amazon’s recently reaffirmed commitment to its second headquarters project and to hiring at least 25,000 workers at HQ2,” JBG Smith CEO Matt Kelly said in a statement. “We continue to work with Amazon to advance plans for Pen Place, and look forward to helping Amazon realize its complete vision for HQ2.”
After the statement's release, JBG Smith recovered some of its losses. Its stock was trading at $16.32 per share just before 3 p.m. ET, down 4.3% on the day and 14% so far in 2023.
JBG Smith has concentrated the majority of its portfolio in the Crystal City, Pentagon City and Potomac Yard areas that comprise National Landing. The area had been a struggling commercial district after the Defense Department vacated millions of square feet of offices nearly two decades ago, but JBG Smith has pushed forward on ambitious revitalization plans, including 1,500 new apartments under construction.
UPDATE, MARCH 3, 2:50 P.M. ET: This story has been updated with confirmation from Amazon and a statement from JBG Smith.
