Amazon Hits Pause on $2.5B HQ2

Amazon’s PenPlace in Arlington. Rendering courtesy of NBBJ

Amazon is delaying the groundbreaking of PenPlace, the second phase of its HQ2 project in Arlington, Va., according to Bloomberg, CNBC and multiple other news outlets.

The 3.3 million-square-foot project is slated to comprise three 22-story office buildings and a separate amenity building named The Helix. JBG SMITH is the developer behind both phases.

PenPlace will be located at the Northeast corner of 12th Street and South Fern Street, and comprise 2.8 million square feet of new office space, along with 115,000 square feet of ground-floor retail. Additionally, plans also call for 2.5 acres of public open space.

READ ALSO: How Much Will Investors, Lenders Reduce Activity?

Amazon’s announcement to halt development comes on the heels of a significant period of layoffs that have affected the tech sector since last year. Amazon announced it is looking to shed 18,000 jobs, a process which started in November 2022, following a period of slower growth for the e-commerce giant.

The company did not mention when it will resume construction work at PenPlace, but the first phase of its project, Met Park, is still slated to come online in June, with 8,000 new workers already assigned to the 2.1 million-square-foot campus. At full capacity, Met Park will accommodate as many as 14,000 employees.

Commitment to Northern Virginia

The company remains committed to its more than $2.5 billion investment in HQ2, where it plans to bring roughly 25,000 jobs over the next decade.

According to its fourth quarter results, Amazon’s operating income decreased to $2.7 billion internationally, compared to the $3.5 billion in the fourth quarter of 2021. Its operating income for the full year decreased to $12.2 billion, down from the $24.9 billion the previous year.

However, the company’s AWS segment fared much better. For the full 2022 year, it reached an operating income of $22.8 billion, above the $18.5 billion recorded in 2021. The company has a massive data center presence in Northern Virginia, which it plans to double over the next 17 years, with a $35 billion investment.

Tech sector’s impact on office leasing

According to a Savills report, office leasing activity has been significantly impacted by job cuts in the tech sector. The fourth quarter of last year saw 2.2 million square feet of leases signed, the lowest quarterly volume recorded over the past five years.

Meanwhile, CBRE found that tech companies accounted for 17 of the top 100 leases in 2022, down from 36 the previous year. The rise of hybrid work, coupled with rising interest rates and concerns over a potential recessionary period this year prompted office occupiers to downsize and halt expansion plans.