Amazon is putting plans on hold for the next phase of construction for their second headquarters in Arlington, Virginia, also known as HQ2, reports CNBC. Construction of the first phase of the HQ2 campus, called Metropolitan Park, is set to open as scheduled this June. This property includes two 22-story office towers that include 65,000 square feet of space for retail, plus restaurants and green spaces. Amazon has already hired more than 8,000 employees to work at HQ2, according to GeekWire.

“We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees, and since Met Park will have space to accommodate more than 14,000 employees, we’ve decided to shift the groundbreaking of PenPlace (the second phase of HQ2) out a bit,” Schoettler said in a statement. “Our second headquarters has always been a multi-year project, and we remain committed to Arlington, Virginia, and the greater Capital Region.”

As originally envisioned, PenPlace includes three 22-story office buildings, over 100,000 square feet of retail space and a 350-foot-tall tower called The Helix. Company spokesperson Zach Goldsztejn said Amazon plans to start pre-construction work on other aspects of HQ2 later this year, says CNBC. It is not clear which aspects Amazon is referring to.

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Part of Amazon’s cost-cutting measures

News of the pause of Amazon HQ2 construction comes on the heels of massive layoffs by Amazon that impacted 18,000 employees and major divisions including Devices, Alexa, Retail, Amazon Stores, PXT, AWS, Amazon Prime, and other corporate and tech divisions. In November 2022, Amazon CEO Andy Jassy said layoffs were expected to be in the 10,000 range. As the company reevaluated their finances and business strategies, leadership decided additional cuts were necessary, announcing them in early January.

“Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so. These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles,” the CEO said in a January 4, 2023 blog post. “Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year.”

The bigger picture

In early February, Amazon reported its fourth-quarter and full-year 2022 financials, and it wasn’t pretty. While net sales for the year were $514.0 billion, a 9% increase year-over-year, the company reported a net loss of $2.7 billion, or $(0.27) loss per diluted share. On the earnings call, Jassy said the company was working hard to streamline costs while continuing to invest in long-term strategies.

In addition to cutting costs, Amazon is examining its workplace policies which may call for less office space. In October 2022, Amazon said it would leave return-to-work and hybrid policies up to director-level leaders to decide how best their teams worked. In February 2023, Jassy announced that employees would be expected to return to the office at least three days a week, starting May 1. He said the company hadn’t worked out all the details yet of bringing so many employees back to work, so they are delaying the change until May. He gave the following examples as justification for the new policy in a February 17, 2023 email and blog post:

• “It’s easier to learn, model, practice, and strengthen our culture when we’re in the office together most of the time and surrounded by our colleagues.”
• “Collaborating and inventing is easier and more effective when we’re in person. The energy and riffing on one another’s ideas happen more freely.”
• Learning from others is easier in person, being able to go to someone else’s work space to ask for input or ideas.
• Teams are better connected when they see each other in person more often.

Insider Take

The news to put further construction of the Arlington, Virginia-based HQ2 on pause is not a surprise based on Amazon’s current financial situation, the change in staffing and return-to-work policies, and an uncertain economy. To avoid further losses and layoffs, the company needs to drastically cut costs, and putting this project on ice is low-hanging fruit. It will be interesting to see how (or if) this project moves forward. The company has committed to hiring more staff for HQ2 – 25,000 over the next decade – but that hiring goal seems likely to be delayed or scaled back as well.

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