Amazon HQ2 rendering

Amazon’s HQ2 project is stuck in the past

In Arlington, Virginia, Amazon is building more than 5 million square feet of office space in a world where offices are no longer prized.

Amazon’s HQ2 has become a test case for what happens when your timing just couldn’t be worse.

Rendering: Amazon; NBBJ

Tens of thousands of jobs. Billions of dollars on the table. From Las Vegas to Vancouver, Austin to Orlando, more than 200 cities set out to prove who was the fairest of them all.

Pre-pandemic, quite possibly the hottest news in urban planning was the pageantry of Amazon’s search for a second headquarters. Maybe the behemoth would opt to revitalize a Detroit, or breathe new life into a Philadelphia.

But the honorees were almost too predictable: In November 2018, Arlington, Virginia, just outside the nation’s capital, and New York City — Queens, specifically — were declared split winners.

It seemed like a boon for the city just across the Potomac River, caveated by the usual concerns over affordable housing and life in the shadow of a tech giant. Arlington had been battling high office vacancy rates for more than a decade. Residents were worried that their property taxes could increase to fund revitalization for struggling commercial areas. Amazon seemed to be the cure-all.

“Everybody thinks it’s going to be this magical elixir right away,” Arlington county manager Mark Schwartz said when Amazon announced the winners, sounding a note of caution that the economic miracle might take a while to materialize. But state and local leaders were anything but measured as they stood behind a podium emblazoned with an amended version of the state slogan: “Virginia is for Amazon lovers.”

“This is a great day for all of us,” a beaming Brian Ball, then the state’s secretary of commerce and trade, said to a cheering crowd.

Plans clicked into place. By January 2020, Clark Construction had broken ground on the first of two phases of building that would add more than 5 million square feet of towers to the city’s commercial real estate.

Then, of course, came COVID-19. Office workers went home. Hospitals filled and overflowed. The world’s attention turned elsewhere.

But in Arlington, development continued apace.

Today the rumble of construction trucks and the din of jackhammers are the soundtrack of life in Crystal City, the neighborhood where, theoretically, thousands of Amazon workers will report to new offices a year from now. The project is envisioned as a white-collar 21st-century paradise, complete with interlacing parks, child care centers, and even a facial spa.

It sounds so utopian, so ideal, so … 2019.

ARLINGTON, VA - NOVEMBER 17: Amazon HQ2 Metropolitan Park construction is seen during a tour on Wednesday November 17, 2021 in Arlington, VA. (Photo by Matt McClain/The Washington Post via Getty Images)Amazon 's HQ2 Metropolitan Park construction is in progress; here, it's shown on Nov. 17, 2021. Photo: Matt McClain/The Washington Post via Getty Images

Amazon’s HQ2, with the first phase scheduled to finish in 2023 and a second phase green-lit in April, has become a test case for what happens when your timing just couldn’t be worse: planning for millions of square feet of office space before one incredible, unimaginable event made new offices the least convenient thing you could build.

In 2017, when Amazon launched the HQ2 contest, the narrative of the tech company that heals economic wounds and propels a city into the future had an allure for Arlington. There was no reckoning with the idea that maybe, one day, the way we value space would change so dramatically. Yet even if it’s not possible to plan physical spaces for an unimaginable future, urban design experts say it’s incumbent on big companies to commit to plans that allow for maximum flexibility.

“So much depends on the client’s willingness to imagine someone else inheriting or getting that building. It requires a kind of imagination,” Susan Piedmont-Palladino, the director of Virginia Tech’s Washington-Alexandria Architecture Center and curator at the National Building Museum, told Protocol.

The assumptions that underlie the financial incentive agreement between Arlington and Amazon illustrate the hubris of the time. The deal calls for Arlington to pay Amazon an estimated $23 million by 2035 in return for Amazon eventually occupying more than 6 million square feet of space. The approximate $23 million projection was based on anticipated hotel revenue resulting from the tech giant’s presence. It’s chump change for Amazon, with a market capitalization at more than $900 billion. It’s not even that much for Arlington, given the county’s $1.5 billion budget for the 2023 fiscal year. But beyond the money, it’s the additional wealth and vibrancy Arlington assumed would follow Amazon — increased Metro ridership, 25,000 highly paid full-time, in-office workers shopping and eating out — that made the deal seem like that magic elixir.

So far, Arlington hasn’t had to pay Amazon any of that money because the hoped-for hotel visitors haven’t materialized. Despite Amazon meeting its commitments on hiring and office usage, neither has the rest of the vibrancy Arlington envisioned.

Budget planning documents and meetings for the 2022 and 2023 fiscal years describe ongoing constraints from unexpectedly low revenues and office vacancies. “There is a lot of uncertainty moving forward,” Katie Cristol, Arlington’s county board chair, said in her state of the county address in June 2022. “It’s true that we are not the same Arlington that we were four years ago, and after all we have endured, there is no going back to the way we used to be.”

The plan of constructing beautiful office towers and filling them with highly paid tech workers in hopes that they alone can juice the tax base and energize the vibe of a place may no longer be a viable option, if it ever was.

‘Everybody is just kind of punting’

Amazon’s timing might be the most painful — the company received approval to begin construction three months before COVID-19 was declared a national health emergency in the U.S. — but it’s not the only tech company caught in the midst of planning massive campuses intended for a different era. Google has been working for nearly five years on Downtown West, a development project that will reshape San Jose, California; construction was due to begin before the end of this year. In 2021, Apple committed to building a $1 billion campus near Raleigh, North Carolina, and Microsoft announced it would develop another headquarters on a 90-acre parcel in Atlanta.

“I foresee some rocky times ahead,” Piedmont-Palladino said. “A lot of tech firms expanded the whole amenity culture with enormous amounts of square footage for lounge space, informal meeting space, roof terraces ... The big question for me as an architect and an urban designer is, what’s going to happen to that?”

These companies now have Amazon to look to as they consider adapting their plans for the new reality, but there’s no evidence Amazon is rethinking its ambitions. Met Park’s two 22-story towers are due to be completed in the third quarter of 2023; four more towers will go up by the time HQ2 is due to be completed three years from now. The company has not announced changes to its plans and, when asked by Protocol if it was rethinking the project, did not indicate it was considering any adjustments. A spokesperson said Amazon designs its offices to meet workers’ needs now and into the future. The architects — NBBJ, the same firm that designed most of Amazon’s Seattle buildings — and developer JBG Smith did not respond to requests for comment about whether plans have evolved for future reuse.

The unique Helix building is rooted in a richly planted urban landscape with pathways, integrated site lighting, and seating opportunities for the public to enjoy.
Image: NBBJ; Amazon
The unique Helix building is rooted in a richly planted urban landscape with pathways, integrated site lighting, and seating opportunities for the public to enjoy.

That leaves the people most directly affected by HQ2 in limbo, uncertain if the glass prism at Arlington’s heart could become more of a monument than a practical space.

“Everybody is still kind of confused about what to do and where to go,” said Eric Cassel, the president of the Crystal City Civic Association. “What’s plan A if everybody comes back and what’s plan B if everybody doesn’t? There’s a whole set of questions like that, and everybody is just kind of punting right now.”

County officials acknowledged that budgeting hasn’t been smooth, despite Amazon’s already large presence. “I know that we all would prefer to be in the situation of our peer jurisdictions who are less dependent on commercial revenue sources,” Cristol said at the April meeting announcing the FY 2023 budget. More than half of Arlington’s revenues come from a combination of private and commercial real estate taxes.

Before the pandemic began, the county anticipated that the cumulative effects of Amazon’s development (including business taxes, property taxes, sales and meals taxes, and hotel taxes) would generate about $174 million in revenues over the first 12 years, from 2019 to 2031. Because the buildings are still under construction and not yet appraised, the county hasn’t provided estimates for what Amazon will pay in property taxes, but the company will not get any kind of break on those.

Given the evidence from the county’s budget concerns and the decline in hotel tax revenues, it’s clear the $174 million expectation reflects a best-case scenario that has yet to materialize.

Everybody is still kind of confused about what to do and where to go.

Aside from the hotel tax incentive, Amazon will not receive any major tax benefits from the county. The state, however, could provide more than $550 million — still a relatively small tax incentive compared to the billions offered by the state of New York for the now-defunct Queens part of the project — if Amazon actually creates the 25,000 jobs it has promised in Virginia and pays those workers an average of at least $150,000 per year. Virginia’s business and commercial tax rates are much lower and more favorable for companies than New York’s notoriously high ones.

Amazon’s outward messaging is upbeat. “This past year, Amazon’s growth in the Commonwealth continued at pace … we continue to make significant progress on the construction of our new development at HQ2,” Holly Sullivan, Amazon’s vice president of worldwide economic development, wrote to the Virginia Economic Development Partnership on April 1.

If the executive director of the National Landing Business Improvement District (where the HQ2 will be located) is concerned, she’s not saying. “We have truly guaranteed job growth,” Tracy Sayegh Gabriel told Protocol. “We’re positioned to thrive in a post-pandemic economy.”

The hope — some might call it denial — is understandable, given Arlington’s history.

UNITED STATES - AUGUST 18: Aerial view of Crystal City, a high-rise neighborhood near Ronald Reagan Washington National Airport, Arlington, Virginia. (Photo by Carol M. Highsmith/Buyenlarge/Getty Images)

An aerial view of Crystal City, a high-rise neighborhood in Arlington, Virginia.

Photo: Carol M. Highsmith/Buyenlarge/Getty Images

A gaping wound

They say it in hushed tones. “I’m assuming you know about the BRAC?”

It haunts Arlington, like a scandal or tragedy no one wants to acknowledge. “The BRAC” is shorthand for the Base Realignment and Closure commission of 2005, which required the Pentagon to move more than 17,000 jobs out of Crystal City. It created a gaping economic wound and a profound psychological one for Arlington.

Crystal City has struggled to fill its office buildings since, battling with vacancy rates between 17% and 24% for more than a decade. Today most people who live in Arlington reside there because it’s cheaper than Washington, D.C. The public schools are better funded and have higher graduation rates. There are more open spaces. It has countless objective merits as a place to live and work, and the housing market remains robust.

But it’s not beautiful, it’s not bustling, and it’s definitely not cool.

Sen. Kirsten Gillibrand once called Arlington “a soulless suburb.” It’s a barb that stuck.

“It’s one of the criticisms of my dear old Arlington that I can’t quibble with too much,” said Christian Dorsey, an Arlington County Board member who chaired the board in 2019 during the HQ2 approvals. Sitting across the street from the block that will one day house Amazon’s 350-foot-tall Helix, a twisting tower with spiraling walkways that in renderings bears an unfortunate resemblance to the poop emoji, Dorsey gestured at the street and admitted there’s little to draw the eye.

The Helix will change that, but it will only open to the public two days per month.

“It's true that we are not the same Arlington that we were four years ago, and after all we have endured, there is no going back to the way we used to be.”

The BRAC prepared the ground for an unusually warm Amazon welcome after the company, which had planned HQ2 to be split between New York City and Arlington, gave up on New York in the face of public opposition.

“Amazon, because it wasn’t envisioned that we would have a commercial tenant that would be in the business of building millions of square feet, kind of came as a wonderful bandage for that gaping wound,” Dorsey said.

With Amazon as an anchor, Arlington could sell itself as a tech corridor with access to Washington, D.C.’s, political power and Virginia’s educational resources. Virginia Tech has just broken ground on a campus that will abut the area, a project that helped lure Amazon. Eight different transit projects — being paid for with state and federal money — have had timelines accelerated in anticipation of Amazon’s growth.

If the rate of remote working remains where it is today, those travelers could be hard to find. Pre-pandemic, the Pentagon City Metro station averaged 12,500 riders each weekday; that dropped to under 4,000 daily in 2020. Today about 4,200 people enter that Metro station each weekday on average. This is despite Amazon’s progress, on paper at least, of fulfilling occupancy requirements of the HQ2 deal penned in 2019, which by mid-2023 requires it to occupy 797,280 square feet of office space. The company is already using more than 1 million square feet spread among six different addresses in Crystal City, according to public records obtained by Protocol.

Additionally, Amazon says it had created 3,922 new jobs in Virginia by the end of 2021 and had more than 5,000 workers assigned to HQ2 as of April 2022, although none of those workers is required to be in-office five days a week.

The city expected annual hotel tax revenues to quickly exceed pre-pandemic averages of $25 million annually as Amazon’s presence grew. Instead, as in cities nationwide, hotel tax revenue has plummeted. In FY 2020, which included several pre-pandemic months, the total was $16,553,257. In FY 2021, it was $5,668,799. FY 2022 amounted to $15,070,995.

The big hits from WFH

At the heart of Crystal City’s corporate landscape sits a large bar inside the local Whole Foods. It used to be hopping after 5 p.m., packed with people in suits and bartenders rushing to pour after-work drinks.

Now, the bartender on duty is lucky to serve a couple of beers, even on a hot weekday prime for happy hour. Many bars across the country have recovered from the economic devastation of the pandemic, but not this one, which once counted on business from commuters working in nearby offices.

Nick Bloom, an economics professor at Stanford who has dedicated the last two years to studying work-from-home practices, doesn’t expect that to change. “I am very convinced work-from-home is here to stay in the U.S.,” Bloom told Protocol. In the United States, the average number of work-from-home days is hovering at around three out of every 10 business days, a number that encompasses service-sector employees and others that require in-person work. The offices at National Landing will cater mostly to workers whose jobs allow full-time remote work.

Job hunters wait to speak with Amazon recruiters at an Amazon Career Day event, where recruiters help candidates build interview skills, prepare them for job interviews and give them more information on the roles within the company, at Crystal City in Arlington, Virginia on September 17, 2019. - Amazon is aiming to hire more than 30,000 people across the country by early next year. (Photo by Andrew CABALLERO-REYNOLDS / AFP) (Photo credit should read ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)

Job hunters wait to speak with Amazon recruiters at an Amazon Career Day event.

Photo: Andrew Caballero-Reynolds/AFP via Getty Images

“We don’t have a plan to require people to come back,” Amazon CEO Andy Jassy said Sept. 7. “We don't right now.”

The company, citing the pandemic’s effect on work habits, has paused construction on at least six office buildings in the United States, including at least five towers with more than 3 million square feet of space in Bellevue, Washington, and another tower in Nashville. Amazon this year has also slowed, paused, or killed the construction and opening of more than 60 U.S. warehousing and fulfillment facilities totaling over 50 million square feet of space, according to MWPVL data. Those closures are related to separate headwinds for Amazon: Unprecedented consumer demand for delivery services early in the pandemic has faded more than anticipated.

What’s more, Amazon significantly slowed hiring in the second quarter of 2022, including in its music and device businesses. And in November 2022, Amazon froze new incremental corporate hires across the company for at least the next few months and declined to estimate when hiring would resume. "We’re facing an unusual macro-economic environment, and want to balance our hiring and investments with being thoughtful about this economy," wrote Beth Galetti, the senior vice president of people experience and technology, in the announcement.

Clark Construction signage outside the Amazon HQ2 development at Metropolitan Park in Arlington, Virginia, U.S., on Wednesday, Nov. 17, 2021.  Amazons HQ2 promises 25,000 jobs in Arlingtons National Landing development by 2030. Photographer: Pete Kiehart/Bloomberg via Getty Images

Amazon's HQ2 promises 25,000 jobs in Arlington's National Landing development by 2030.

Photo: Pete Kiehart/Bloomberg via Getty Images

‘A very logical next question’

Arlington’s office vacancy rates illustrate the size of its problem. More than a million square feet of office space was emptied and returned to the market in Northern Virginia between January and July 2022, according to Colliers, a real estate management company. The vacancy rate for National Landing (the official name for Amazon's Arlington business neighborhood) in the second quarter of 2022 was 24%, the second highest of every office market in Northern Virginia. That will probably worsen when HQ2 construction finishes and Amazon likely returns to the market the 1 million square feet of office space it’s currently using.

“There’s just a very logical next question: Office users aren’t going to use that space, what other users could use that space?” asked Uwe Brandes, Georgetown University’s faculty director of the Urban and Regional Planning Program and the Georgetown Global Cities Initiative. “The most important obvious next part of that is a question around retrofitting office buildings into residences. A very logical, almost kind of a substitution conversation.”

The practice is called adaptive reuse, and it’s not a new idea: 18th- and 19th-century buildings have been converted into hotels, and old warehouses have been reborn as residential complexes. But modern office buildings are harder to convert because their open floor plans don’t allow for the carving out of smaller spaces with sufficient windows for air flow and natural light.

A tree map chart projecting the office space glut for 2023 in Arlington, Virginia.

Chart: AJ Caughey/Protocol

Additionally, the companies that built them are clinging to their investments. Doing otherwise would be the equivalent of admitting they’d lit mounds of cash on fire. Imagine if Apple allowed a permanently remote workforce. Cupertino’s Apple Park — which opened in 2017, cost $5 billion, and includes dining areas to seat thousands — would become an absurd boondoggle to investors, an impression Apple avoids by claiming that it needs workers in the office at least three days a week.

Before 2020, the biggest criticisms of HQ2 took two slants, both of which now seem prescient. The first was that the structures in the development parcels were too large. Some members of Arlington’s planning committee pushed for the complex to feature smaller structures connected and interrupted by more roads and sidewalks, which would make them easier to adapt for future uses. The second was that the zoning reforms that allowed Amazon to do almost whatever it wanted architecturally were unfair — if Arlington was going to give Amazon that kind of leeway, it should do the same for other businesses to enable them to adapt to changing circumstances.

Shannon Flanagan-Watson, the deputy county manager and interim director of Arlington Economic Development, warned in a September 2022 update that Arlington will continue to face “unprecedented” office vacancy rates as employees continue to work from home. “[Amazon’s] new state-of-the-art office space will not drastically reduce the County’s vacancy rate,” she wrote.

From his position as county board member, Dorsey told Protocol that he has no idea what, if anything, Amazon plans to do differently with its space. But creative, permanent changes to zoning rules have suddenly become popular political talking points. At the first county board candidate debate in September, all three candidates said they supported changes to zoning rules in favor of adaptive reuse.

Hard hats with Amazon logos at the company's HQ2 development site while under construction at Metropolitan Park in Arlington, Virginia, U.S., on Wednesday, Nov. 17, 2021.  Amazon's HQ2 promises 25,000 jobs in Arlington's National Landing development by 2030. Photographer: Pete Kiehart/Bloomberg via Getty Images

Hard hats with Amazon logos at the company's HQ2 development site.

Photo: Pete Kiehart/Bloomberg via Getty Images

"I believe that we should have office-to-residential conversion in order to deal with the vacancy rate and our housing crisis at the same time," said Audrey Clement, an independent board candidate. Matt de Ferranti, a current county board member, agreed, calling the way spaces need to be adjusted and used today “a complete paradigm shift.” Flanagan-Watson’s Economic Development agency has urged the board to consider a number of zoning adaptations at upcoming meetings for the rest of the year.

Members don’t say it, but the 2019 vision of an Arlington literally centered around Amazon’s aesthetic has become an outdated one.

The 2030 Arlington envisioned in 2019 would be one flooded with daily office workers, commuting on the Metro and turning Arlington into a tech-centered haven for the affluent. Now, the Arlington of 2030 could be one where the people who need to work in-person jobs can actually live near them. Work usually shoved outside of cities to cheap, rural spaces could become more central to the community. Empty towers could be renovated to house wet labs and public schools. A warehouse could become a fulfillment center, and a mostly vacant office could become housing affordable to the delivery truck drivers staffing that center. If people won’t travel for Amazon-related business conferences, maybe they’ll travel for microbreweries and top-tier surgical centers, which could use the ample available space if zoning rules changed.

Flanagan-Watson wrote that the county is committed to pushing for such changes, citing the prospect of vacant office buildings someday housing colleges and universities, animal boarding facilities, urban agriculture centers, and distilleries.

“In Arlington, we would love to be able to have … public education capacity, in either increased numbers or in different locations. Can commercial space be a solution there?” Dorsey suggested. “Or maybe we have the opportunity to give nonprofit spaces a new home and security.”

There’s no question that Amazon will catalyze some form of growth in Arlington. But exactly how much, and what shape that will take, may depend on Amazon’s own willingness to embrace a future it never planned for.

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