If Amazon When the company first announced plans for a second headquarters in 2017, it sparked an epic bidding war. Virginia beat out 237 competitors to win the project, and when it finally opened last week in the Crystal City neighborhood of Arlington, Virginia, Gov. Glenn Youngkin was there to celebrate. “We have high expectations because they are well positioned,” he told Amazon employees, “of an organization that delivers on its promises.”
But those promises from Amazon have changed dramatically from the original vision, which envisioned a $5 billion complex employing 50,000 people. In the newly opened HQ2 with two new, state-of-the-art office towers, 8,000 employees will be on site by autumn.
From left, Suzanne Youngkin, Brian Huseman, Governor of Virginia Glenn Youngkin, Holly Sullivan, John Schottler, Lieutenant Governor Winsome Earle-Sears and Christin Dorsey cut the ribbon at the grand opening of Amazon HQ2 in Arlington, Virginia on June 15, 2023 .
Amanda Andrade Rhoades | The Washington Post | Getty Images
In March, Amazon announced that it was delaying a second phase of the project in a bid to reduce costs company-wide. The company says it will still employ 25,000 people by 2030 and spend $2.5 billion on the site — half of the original plan — but can’t say when groundbreaking for the next phase will occur.
“I think when you’re going to provide that much square foot of space over a number of years, you realize that there’s always flexible times to deliver in terms of project timing,” said Holly Sullivan, Vice President of Amazon Global Economic Development.
Businesses across the country are putting expansion plans on hold
Site selection experts say Amazon isn’t the only one to scale back its plans as uncertainty weighs on many parts of the economy.
“The inflationary impact (and) rising interest rates has given people a lot of reasons to hit the pause button a little,” said Tom Stringer, director and head of BDO’s site selection and incentives practice in New York. “Projects don’t really come to a standstill. They’re kind of at a standstill,” he said. “It’s definitely progressing slowly over a period of six to eight months.”
Uncertainty features prominently in the latest CNBC study, America’s Top States for Business. Companies are looking for locations where the economy is growing and government finances are strong. The Economy category also measures things like new business formation and the health of the local real estate market. It is the third most heavily weighted category of ten under this year’s methodology.
Amazon started reducing HQ2 early on. In 2018, when it became clear that the company would not be able to find 50,000 employees in one location, it split the project between Arlington and Queens, New York. Then, as local resistance exploded in New York, Amazon decided to abandon New York, sending 25,000 employees to Arlington and redistributing the rest to its other North American hubs.
More recently, the company has faced severe cost pressures following its expansion in the Corona era. Last fall, the company announced the biggest layoffs in its history, which have continued this year. This streamlining also included the delay of the second phase of HQ2.
“Part of that is economics,” Sullivan said. “This also means that we want to learn and make sure that what we build, the space we provide today, will also be good in 5, 10, 15 years.”
Some losses could be permanent
Amazon real estate chief John Schoettler recently told CNBC that Arlington and Nashville, Tenn., where there is a fulfillment center on the East Coast, will remain focal points for expansion. “I don’t think we’re going to get any bigger in Seattle,” Schoettler said. “I think we’re pretty exhausted out there.”
But the economy is a problem for businesses and business development officials across the country, particularly in Arlington, which was once home to dozens of defense contractors. With the future of the workplace still uncertain, Arlington is struggling with an office vacancy rate of 22% today. And officials know some of that space may never be occupied.
An interior view of Amazon HQ2 during the grand opening ceremony on June 15, 2023 in Arlington, Virginia.
Drew Angerer | Getty Images News | Getty Images
“Now we have to figure out what to do with these physical assets, particularly those that have reached their useful life,” said Ryan Touhill, Arlington’s director of economic development. “We really need to start thinking about how we can convert these assets into something like housing, a hotel or some other use that can not only generate revenue for the county but, quite frankly, continue to strengthen our neighborhoods, economically.” resilient places.” “
Since HQ2 is exclusively new office space, this does not help to solve the vacancy problem. But even the scaled-down version of the project goes a long way toward revitalizing Arlington.
The two new office towers overlook a new community park that was once home to vacant lots and warehouses. Street level is populated with new retailers, many of them small businesses. Some Amazon facilities are open to the public.
John Schoettler, Amazon’s Vice President of Global Real Estate and Facilities, leads Virginia Gov. Glenn Youngkin through HQ2.
Tasha Dooley
“There’s going to be a lot more excitement in the neighborhood,” Sullivan said. “When you think of the 8,000 employees in 2.1 million square feet, the shopping, all that, right across the street from Pentagon City, there’s just going to be more activity, more excitement and enthusiasm.”
Because of this, local officials say they are not concerned that Amazon may delay some of its plans.
“We still anticipate that they will execute on their original vision and plan for Arlington and HQ2, and they have given us all the guidance,” said Christian Dorsey, Arlington County Chief Executive. “It may just take a little longer.”
CNBC’s America’s Top States for Business ranking, in which we rank all 50 states in ten competitive categories, is out July 11.