Amazon Pausing Construction of Washington, D.C.-Area Second Headquarters

Amazon

AMZN 3.01%

had originally planned to break ground on the second phase of the project, which includes three 22-story office buildings, during the first quarter of 2023. A new start date hasn’t been set.  

A first phase with two office towers is almost complete, Amazon said. The company plans to move employees into those buildings, which can accommodate more than 14,000 workers, starting in June. The company currently has about 8,000 people working in the area. Bloomberg News earlier reported the delay in construction. 

“Our second headquarters has always been a multiyear project, and we remain committed to Arlington, Virginia,” said John Schoettler, Amazon’s vice president of global real estate and facilities, in a statement. A spokesman said the company has sufficient space for its employees and doesn’t yet need to begin construction for added space.

The Amazon announcement shows how the tech industry, whose rapid growth for years was an economic driver in the U.S., has started to drag on some areas of the economy. After adding employees at a breakneck pace during the pandemic, Amazon recently announced extensive cost-cutting measures that included layoffs.

The company’s shares rose by nearly 3% Friday, surging with other companies as the U.S. services sector expanded for a second straight month in February, adding to evidence of economic resilience.

Tech giants that added tens of thousands of jobs and expanded their real-estate footprints have in many cases reversed course in recent months, slashing payrolls and saying they will shrink their office space. 

Amazon’s second headquarters project set off a fierce battle between cities when the company revealed in 2017 that it would build another headquarters in a city outside of Seattle and create 50,000 jobs. It led to one of the most extensive business beauty contests ever, with hundreds of cities—and even some smaller towns—offering tax breaks and other incentives in the hopes of netting an array of economic benefits that the company promised.

The company in late 2018 announced that it would split the project between New York City and Northern Virginia. A few months later, however, the company canceled the plans for New York after backlash from union leaders, politicians and other activists to the nearly $3 billion in government incentives Amazon would have received for creating 25,000 jobs in the city.

The Arlington site is what primarily remains of the yearlong public contest, which drew a backlash against Amazon from many of the spurned cities and other officials who criticized the way it sought tax incentives for a second location, which came to be called HQ2.

Stephanie Landrum,

chief executive at the Alexandria Economic Development Partnership, on Friday said the largest impact on Amazon’s pause will be on property taxes in the county. Incentives for Amazon are performance-based, Ms. Landrum said, including jobs created and local hotel taxes.

“I think we can take this news and still be optimistic about it,” Ms. Landrum said. Amazon’s second headquarters spurred development such as the Virginia Tech Innovation Campus, an education and research center that helped the region secure Amazon’s new campus.

“Tech companies are taking a breath to re-evaluate the changing landscape as we have pivoted from remote work to hybrid to now returning to offices,” said Matt Patton, executive vice president at AngelouEconomics, an Austin-based economic development consulting firm. “Amazon can have so many powerful ripple effects in the economy, that when they make a big decision like this, we’re going to take notes.”

Mr. Patton said in order for Amazon to keep incentives from the Arlington region, it will need to eventually keep construction going.  

Zach Goldsztejn, an Amazon spokesman, said the company still plans to eventually build out the second phase of the HQ2 project and house 25,000 employees. Amazon is set to complete the first phase, named Metropolitan Park, by this summer. Met Park is about 2.1 million square feet. The second phase, named PenPlace, is planned to be about 2.8 million square feet. 

Amazon has been ambitious about the Arlington complex. The second phase of the project called for three 22-story office buildings and smaller retail buildings surrounded by woodlands, an outdoor amphitheater, a dog run and parking for around 950 bicycles. The centerpiece would be a 350-foot structure dubbed the Helix that would feature two spiraling outdoor walkways with trees and plants from Virginia that twist to the building’s top. The first buildings of the second phase were planned to be completed by 2025.

For the project, the company also announced investments in affordable housing, education programs in schools and local nonprofits around Washington, DC. “We appreciate the support of all our partners and neighbors, and look forward to continuing to work together in the years ahead,” Mr. Schoettler said in the statement.

Amazon similarly paused plans last year on expansions in Nashville and Bellevue, Wash. Amazon is re-examining the interior space of several planned offices in Bellevue and pausing construction on one building there, Mr. Goldsztejn said. In Nashville, the company hasn’t yet opened one of two new buildings as it also reassesses what type of workspace is needed postpandemic. It has about 3,200 employees there.

Amazon grew rapidly at the start of Covid-19 pandemic, but like many other tech companies, the company has recently looked to slash jobs. In recent months, the company laid off about 18,000 employees, the highest number of any technology company in this recent wave of layoffs. It is also closed certain projects such as its AmazonSmile charitable program. 

Amazon on Friday also said it would close eight of its cashier-less Amazon Go stores throughout Seattle, New York City and San Francisco on April 1. The closings add to other struggles Amazon has had in physical retail, including closing its physical book stores in 2022. A spokeswoman said that the company will still operate more than 20 Amazon Go stores across the U.S. and remains committed to the Amazon Go format.

Mr. Goldsztejn said the construction pause in Arlington isn’t connected to the recent layoffs and doesn’t mean more cuts are on the way.

He said the pause is happening as Amazon evaluates its workplace needs. The company recently ordered its employees to work out of physical offices at least three days a week, shifting from a policy that enabled individual teams and managers to decide how often to be in the office. 

Amazon’s policy evolved throughout the pandemic. The company early on in the health crisis moved to expand its physical offices and discussed having an office-centric culture. As its tech peers offered more flexibility, however, the company shifted to giving employees more choice. 

In late 2021, Chief Executive

Andy Jassy

said corporate team directors would decide if staff need to work from the office, saying then that it expected some teams to work mostly remotely while others would combine remote and in-office work. The company made that announcement as competition for tech talent was at a high and the labor market tight. 

Things look different now. The layoffs in recent months have happened as businesses have grown more slowly compared with early in the pandemic. Many companies across industries have moved to require more in-office work.

 —Alyssa Lukpat and Scott Calvert contributed to this article.

Write to Joseph De Avila at [email protected] and Sebastian Herrera at [email protected]