Amazon HQ2 is not matching original hype. Economy is partly to blame

When Amazon first announced plans for a second corporate headquarters in 2017, it set off an epic bidding war. Virginia beat 237 competitors to win the project, and when it finally opened last week in the Crystal City section of Arlington, Virginia Gov. Glenn Youngkin was there to celebrate. “We have high expectations because they are well placed,” he told Amazon employees, “on an organization that delivers on promises made.”

But those promises from Amazon have changed dramatically from the original vision, which called for a $5 billion complex with 50,000 employees. The newly opened HQ2, with two new, ultramodern office towers, will have 8,000 employees by this fall.

In March, Amazon announced it was delaying a second phase of the project as it cuts costs company-wide. The company says it is still committed to employing 25,000 people and spending $2.5 billion on the site — half the original plan — but it can’t say when that will happen.

“I think when you’re looking at delivering this much square feet of space over multiple years, there’s a great understanding that there’s always times of flex when you can deliver, and the timeline of projects,” said Holly Sullivan, Amazon’s vice president for worldwide economic development.

Companies nationwide are putting expansion plans on hold

Site selection experts say Amazon is not alone in scaling back its plans as uncertainty chills many parts of the economy. 

“The inflationary effects (and) the rising interest rates have given folks a lot of reasons to hit the pause button a little bit,” said Tom Stringer, a principal and leader of the site selection and incentive practice at BDO in New York. “Projects aren’t really stopping. They’re in a state of sort of stasis,” he said. “Things definitely get slow rolled for a six to eight-month period.”

The uncertainty looms large in CNBC’s latest America’s Top States for Business study. Companies are seeking locations where the economy is growing, and where state 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-heaviest weighted category out of ten under this year’s methodology.

Amazon began scaling back HQ2 early on. When it became clear in 2018 that the company would not be able to find 50,000 employees to hire in one location, it split the project between Arlington and Queens, New York. Then, when local opposition blew up in New York, Amazon decided to ditch New York, put 25,000 employees in Arlington, and spread the rest among its other North American hubs.

More recently, the company has faced intense cost pressures following its Covid-era expansion. Last fall, it announced the largest layoffs in its history, which have continued into this year. That belt-tightening included delaying the second phase of HQ2.

“Part of that is the economy,” Sullivan said. “Part…