Amazon pauses construction at second headquarters in Virginia

Amazon will pause construction at the second headquarters it is building in Arlington, Va., the company confirmed Friday, a major setback for the e-commerce giant that just years ago promised Northern Virginia an economic boom and offices filled with 25,000 employees.

The tech giant said it has hired for more than 8,000 of those positions and plans in June to formally open Met Park, the first phase of construction in Arlington. But PenPlace, a larger phase that would take up more than 3 million square feet just a few blocks away, 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.”

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, have announced major job cuts in the past several months as the pandemic boom the companies experienced has slowed. 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 prompted by the pandemic.

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

Plans for the PenPlace site in the Pentagon City neighborhood include three corporate office buildings, about 2.75 acres of open space and a futuristic glass “Helix that would mark the area’s skyline. Lighty said that while the company is moving ahead with preconstruction activities such as filing permits, a final timeline for the project is still being determined.

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.

For more than a year, Amazon built up suspense with a beauty contest among North American locations, soliciting bids for the best economic incentives in return for what was promised to be a boom in construction and jobs. Hundreds of cities from Anchorage to Dallas bid, and the company narrowed it down to a list of finalists.

In the end, many of the cities felt the decision was a bait and switch as Amazon decided to split the investment between New York and Virginia - although the company eventually backed out of the New York plan after public resistance.

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.

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 in Arlington is one of the largest undeveloped parcels in the Washington, 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. It is unclear what impact construction delays may have on 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.

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The Washington Post’s Caroline O’Donovan contributed to this report.