What will Phase 2’s pause mean for Amazon HQ2’s future in Arlington?

Amazon specifically declared it would pause construction on the PenPlace build in Arlington, Virginia, which was approved last spring. It assured the masses that Phase 1, Metropolitan Park, is still on schedule to open in June. But the 2025 opening schedule for its ice cream-shaped Helix Building and more is pushed back to an undisclosed date. While mass layoffs might have changed the number a little, the company said that it’s already brought 8,000 employees to the HQ2 area.

So far, Arlington County’s board said that the company still plans to seek permits for the build and open the campus in full — implying this decision is not a full stop. It also plans to fully meet several commitments, including its $30 million affordable housing move.

But a pause on such a large project, which touted millions upon millions of tangible and intangible benefits to the National Landing and greater Northern Virginia areas, is bound to have an impact. Michael Farren, a senior research fellow at the Mercatus Center at George Mason University, said that given the current economic environment, the decision to pause PenPlace isn’t entirely unexpected. And he thinks it’s actually a good sign that the company kept up with changes to the economy and the local area since project plans were announced in 2017.

Why pivot?

Businesses adjusting plans for large, multi-year projects midstream happens frequently, he noted. Sticking with the best decision five or six years ago versus what makes the most sense now, he thinks, is much more effective and efficient.

“I thought it made complete sense, given the economic environment and the changing economic factors, that Amazon, and the tech industry in general, is facing as compared to the decisions and commitments that Amazon made in 2017 and 2018 when they were launching Amazon HQ2,” Farren told Technical.ly.

So why did the tech giant hit the pause button? Farren thinks the remote work shift made a big difference. When Amazon made HQ2 plans in 2017, remote workers made up a small percentage of the entire tech and broader workforce. But after the pandemic forced a near-overnight change, workers sought hybrid and remote options more than was ever expected.

“Instead, employees are willing to accept — for the same pay or maybe even for reduced compensation, to be able to work either fully remote or to work hybrid — only coming into the office a couple of days a week,” Farren said.

Arlington County Board Chair Christian Dorsey said that the county has not made any payments to Amazon based on the HQ2 deal’s performance incentives, which included benchmarks for various jobs, a certain amount of square footage and growth in transient occupancy taxes (The Washington Post reported last September that Arlington hadn’t paid Amazon anything).

Farren calculated that Amazon would receive about $900 million in incentive-based subsidies from the state and local governments. But a pause — if not an outright cancellation — on the second part of the build would likely mean Amazon won’t meet those goals by the deal’s deadlines.

At the moment, it’s unclear if Amazon has received any of these promised funds. But even if it doesn’t meet its goals, Farren still thinks it will get its money one way or another. In long-form builds like this, he said, it’s more likely that the governments would move the benchmarks and offer Amazon a new contract that would let the company claim at least some portion of the subsidies, if not the full amount, based on a reduced level of eligibility; in others words, Amazon could build a smaller campus and add fewer new residents or jobs.

The development’s future

While some speculated that the announcement meant Phase 2 wouldn’t get completed at all, Dorsey said at a press conference about the pause that this was just a delay.

“We expect that this will continue to be a long-term commitment that Amazon has to the Commonwealth of Virginia and Arlington County, specifically,” Dorsey said. “We are quite confident that Amazon remains committed to the second phase of its HQ2 project — otherwise known as PenPlace, a project that was entitled in April of last year — and also to providing the benefits of that project to the community.”

Fairfax County. (Photo by Flickr user La Citta Vita, used under a Creative Commons license)

Still, Farren said he would be surprised if the 2017 dreams for HQ2 were completed in full. While he believes construction will continue, he’s not convinced it will entail five high-rise buildings and the Helix.

But even if Amazon stops at two office towers, he said, it doesn’t mean that HQ2 won’t have the promised impact of bringing workers to the area. It already seems to have met the clout benchmark, with several companies moving headquarters to Northern Virginia following the announcement.

Instead, those workers will likely be working remotely and commuting to the office a few days a week, which opens up the geographic impact of HQ2. If they don’t need to be at HQ2 five days a week, employees won’t need to be so concentrated around National Landing and might find the surrounding suburbs more appealing.

“Even if Amazon HQ2 doesn’t get to the size it was initially anticipated to be, it doesn’t mean that the economic impact of the region might be any less, because the workers may just be working remotely,” Farren said.