(Bloomberg) -- Amazon.com Inc. is pausing construction on its sprawling second headquarters near Washington, a decision that coincides with the company’s deepest ever job cuts and a reassessment of office needs to account for remote work.
John Schoettler, Amazon’s real estate chief, confirmed the pause in a statement to Bloomberg News. Schoettler said the company remains committed to Arlington, Virginia, where by 2030 Amazon has committed to spend $2.5 billion and hire some 25,000 workers. But the construction moratorium will delay the online retailer’s full arrival at its biggest real estate project, and could create headaches for local developers, as well as construction and service workers banking on Amazon’s rapid expansion.
The first phase of the campus that the company calls HQ2 is nearing completion and will be finished and occupied as planned. Amazon, which says it now has more than 8,000 workers in the area, expects to start moving those employees to two newly completed office towers in a 2.1-million-square-foot development called Metropolitan Park, near the Pentagon and Ronald Reagan Washington National Airport, in June.
The delay affects a larger phase across the street. It calls for three, 22-story office towers and the 350-foot-tall (107-meter) Helix, a corporate conference center and indoor garden designed to echo the Spheres, plant-filled orbs at the heart of the company’s Seattle headquarters. Arlington officials granted the 2.8-million-square-foot project, called PenPlace, its most important approval in April.
JBG Smith Properties, the developer working on the project, dropped as much as 8% to a record low. Amazon gained almost 3% in New York.
Amazon and its developers had at one point considered starting to dig the foundations and underground parking garage of that block immediately following the vote, according to a person familiar with the plans, who requested anonymity to discuss confidential deliberations. The company says it had targeted the first months of 2023 for a formal groundbreaking.
That is now paused, and Schoettler didn’t specify a new start date.
“We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees,” he 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 and JBG Smith Properties had for months been discussing modifying the PenPlace plans, in part to speed construction of some elements to meet commitments the company made to provide community benefits, said the person. Those include things like hosting a high school geared toward adults and building a public plaza, bike path and retail space.
In an extended delay, Amazon will likely have to modify those arrangements. Plans for the site approved by the county require the company to meet construction and permitting milestones by April 2025, unless the officials grant an extension. The company expects roughly three years between groundbreaking and the arrival of the first employees in a completed office tower.
Arlington County Board Chair Christian Dorsey said he spoke with Amazon representatives before the delay became public Friday morning. They didn’t offer a new construction timeline, he said, but indicated that Amazon would proceed this year with permitting on the second phase of HQ2, indicating to him that they could begin construction in 2024.
He said the company is ahead of schedule on its local hiring goals and that he’s confident that Amazon will proceed with the second phase as planned, including the public benefits it has promised.
“It’s just going to take a little longer to realize,” Dorsey said.
JBG Smith Chief Executive Officer Matt Kelly said in a statement that he was encouraged by Amazon’s “recently reaffirmed commitment to its second headquarters project,” adding that related work continues on a nearby college campus and apartment units.
Amazon in 2017 announced plans for a second headquarters that would ultimately house 50,000 employees, prompting cities around North America to bid ferociously for the project. After evaluating dozens of proposals, the company announced it would split the campus between New York and Northern Virginia, but opposition from local politicians and union officials prompted executives to abandon New York. Government entities in Virginia committed to roughly $800 million in tax breaks and infrastructure improvements over 15 years in exchange for 25,000 of those workers.
Amazon grew rapidly during the pandemic, but has started to reassess real estate projects to account for the likelihood that some office roles will be performed remotely — at least part-time — for many years. The company last year froze most corporate hiring and began a round of layoffs that will ultimately total about 18,000 workers.
Meanwhile, construction projects in Bellevue, Washington, near Seattle, and in Nashville, Tennessee, were paused while Amazon teams redesigned buildings. Last month, Amazon Chief Executive Officer Andy Jassy said the company would require most employees to begin spending a minimum of three days a week in the office. That policy that takes effect in May.
“Our second headquarters has always been a multiyear 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. “We appreciate the support of all our partners and neighbors, and look forward to continuing to work together in the years ahead.”
(Updated with comments from Arlington County official, developer beginning in the 11th paragraph.)
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