When Amazon announced in November 2018 that Arlington, Va., would be the site for its second headquarters outside of Seattle, it set off a frenzy of real estate speculation. Two years and a pandemic later, the housing market around Amazon’s second headquarters and National Landing remains heated. But not necessarily because of Amazon.

“In November 2018, there was a big spike in prices and lots of speculation about what Amazon would mean to Arlington, Crystal City and Potomac Yards,” said Dawn Wilson, a real estate agent with TTR Sotheby’s International Realty in Arlington. “Investors wanted to buy everything, especially condos. But that died down a lot in 2019. We saw a small spike in closings in those neighborhoods again in February and March of 2020, but once the pandemic hit there was a big dip all over the DMV for a few months.”

Sales and prices jumped again in May in the area surrounding the headquarters, said Wilson, but that’s the same across the board throughout the region.

The housing market around the site has changed since the announcement of the new headquarters two years ago in the wake of the pandemic, said Danielle Hale, chief economist of Realtor.com.

“Reflecting the nuance we’ve seen in other major metros, the mix of homes available for sale has shifted, with more condominiums and townhouses coming up for sale at a time when many buyers are shifting their attention to the additional space that single-family homes provide,” said Hale in a Realtor.com report. “This corner of Northern Virginia remains a difficult real estate market to enter, but with remote work prompting some to look further away from dense urban cores, those seeking to snag a condo near the Metro just a short commute from HQ2 may find it’s a bit easier to do so than in the last couple of years.”

The pace of sales in Arlington slowed in October, with homes selling in 34 days, according to Realtor.com, 24 percent slower than in October 2019. In contrast, homes in the surrounding D.C. metro area were selling 15 percent faster in October compared with October 2019.

“In the 22202 Zip code surrounding HQ2, there’s almost no inventory of single-family homes on the market,” said David Hawkins, executive vice president of McEnearney Associates in Alexandria, adding that sales are up 22 percent this year in Northern Virginia as a whole. “There are about 38 condos on the market. We’re seeing a little less demand for high-rise condos since the pandemic.”

In September, there were 44 active listings on the market in the 22202 Zip code, according to Bright MLS, an increase of 238 percent compared with the number of active listings available in September 2019. The median sales price for the Zip code was $660,000 in September, an increase of 2.7 percent compared with September 2019. However, that’s far below the regional increase in sales prices year-over-year of 18.8 percent, according to Bright.

Hawkins said he believes the “Amazon effect” driving demand for residential property has largely subsided, although he says some homeowners still plan to wait to sell in the hope that they can profit from the company’s presence in the future.

Timeline for Amazon

Amazon opened its first Arlington office in June 2019 and is anticipated to have approximately 1,600 employees working at the company’s headquarters by the end of 2020. The company is committed to employing 25,000 people at the Arlington headquarters over the next decade. (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)

“Because construction continued during the lockdown, the National Landing project is all on schedule in spite of the pandemic,” said Matt Kelly, CEO of JBG Smith in D.C., a real estate investment trust and developer of several projects in National Landing. “We handed over our phase one of our retail project to tenants in what we call the Central District, and the first office building, a renovation of an old office building, has already been turned over to Amazon.”

The retail tenants are doing their interior build-out work and most are expected to open in the middle of 2021, Kelly said. Amazon is also working on the interior space of its office building at 1770 Crystal Dr. in Crystal City.

Nearly 1,000 new apartments opened and began leasing in the National Landing area between October 2019 and October this year, according to Chris LeBarton, a senior market analyst with CoStar, a data analytics and marketing firm for commercial real estate in Columbia, Md.

“Approximately 5,000 more apartments are in the pipeline for the National Landing area, including some that are under construction, some planned and undergoing the paperwork phase, and some that are proposed but not yet approved,” said Doug Ressler, director of business intelligence for Yardi Matrix, a commercial real estate research and data provider. “The county is doing a lot of planning for transit in the area, too. JBG Smith is doing a lot to make this a walkable area with urban density in a suburban location.”

Transportation plans are likely to be finalized in the next four to six months, said Ressler, and will include Metro, MARC and VRE train access that will eventually link National Landing to Richmond.

“The overarching story for the National Landing area is that it’s older than some other communities in Northern Virginia and was ripe for new development,” said Nicholas Mills, with the CoStar division in Washington. “There hasn’t been much new apartment construction there in years.”

The National Landing development is meant to be a walkable dense community with immediate access to public transit and a variety of shops and restaurants.

“We’re paying close attention to the retailers we work with who are all having very different experiences, as you can imagine,” Kelly said. “But that neighborhood has been underserved by retail, so our plans are on track.”

While Kelly said JBG Smith’s focus is on the long-term strategy for National Landing, he is concerned about the short-term impact of the pandemic on the retail sector.

Remote work trends

Demand for apartments, condos and offices has weakened in many locations because many employees continue to work remotely to reduce the spread of the virus.

“Before the pandemic, leasing was strong, but now renter demand has slowed across the U.S. and across the D.C. region,” Mills said.

Amazon announced in October that employees who can work from home may do so until June 30, 2021.

“We continue to prioritize the health of our employees and follow local government guidance,” an Amazon spokeswoman said in a statement. “Employees who work in a role that can effectively be done from home are welcome to do so until June 30. We have invested significant funds and resources to keep those who choose to come to the office safe through physical distancing, deep cleaning, temperature checks, and by providing face coverings and hand sanitizer.”

While Ressler said the apartment market in the D.C. area is generally strong, demand is highest for what he terms “B,” “C” and “D” apartments that are more affordable than the new luxury apartments opening and under construction in Northern Virginia. He said his company is starting to see more concessions offered, which refers to enticements to attract renters such as a month or more of free rent, among the Class A apartment buildings.

JBG Smith has millions of square feet to develop in the area, most of which will be apartments, Kelly said.

“A big part of our strategy is to build housing, which we think will be in high demand not just for Amazon employees but for others who want to live in this reimagined and updated urban place with walkable amenities,” Kelly said.

Kelly acknowledged that the apartment market is softer now than in the past, but he believes demand for apartments will return.

“Our focus is a long-term building strategy over the next two or three years when we believe the pandemic will be behind us, so we’re not too worried about the next three to nine months,” Kelly said. “If you look at the concerns before the pandemic, we were worried in this area about not having enough people to hire, about commuting and traffic, and about the low supply of housing. Our National Landing developments will help with those last two issues.”

While high-density, walkable locations in the city and inner suburbs were in demand before the pandemic, the desire for more space while staying physically distant and the increase in people working from home led many to move to suburban and rural locations. However, real estate data shows that this may not signal a long-term, permanent trend.

According to the Global Consumer Trends report by Dynata, a data analytics firm, during the pandemic, the percentage of people moving out of cities vs. those who moved into cities has been nearly equal, with 62 percent leaving cities vs. 59 percent moving into cities. The report also found that among people who have moved since March, only 55 percent feel it is a permanent move.

“If Amazon’s employees can work remotely, then they don’t need to live close to the headquarters,” Hawkins said. “There’s a slight risk that there could be an oversupply of apartments in the future, but so far apartments, condos and single-family homes are getting leased or purchased.”

Hawkins said that some Amazon workers may choose to move farther from Arlington to afford a larger home, but he anticipates that younger millennials will continue to want an urban walkable lifestyle that will keep Arlington’s market thriving.

“Most of my clients work from home all the time or go into an office once or twice a week,” Wilson said. “While some Amazon employees with families may want to buy houses farther away, Arlington feels both like a city and like the suburbs and I think demand will stay strong here.”

Buyers and renters sometimes overlook the importance of high-speed robust Internet access, Ressler said. “People think Internet access may be more of an issue in rural or distant suburban areas, but there are digital deserts in urban areas, too,” Ressler said. “One thing the National Landing area has going for it is a significant investment in digital infrastructure because of the long-term existence of government and defense offices in the area.”

Future of National Landing

In National Landing, Amazon will own about 4 million square feet of its headquarters space and JBG Smith has leased all of 1770 Crystal Dr. to the company, Kelly said.

“Amazon is hiring even faster now and is thriving as a company, which is encouraging for National Landing,” Kelly said. “Amazon has a strong corporate culture that extends across their offices and their warehouses, so we’ll likely see them trying to keep their office teams working together as much as possible. It would be difficult for the company to add a third culture of remote workers for the long term.”

Amazon has an almost unlimited capacity to “wait-and-see” about its office space, LeBarton said.

“They really value face-to-face meetings, especially on their technology and development side,” Mills said. “They just doubled-down on their investment in National Landing with the purchase of a Marriott hotel at PenPlace for $150 million that they plan to demolish to expand their office space.”

Mills said he believes demand will remain strong for office space in National Landing because of the continued presence of the federal government as well as Amazon. In addition, he points out, Amazon’s plans are intertwined with a comprehensive revitalization plan for the area that includes the Virginia Tech campus and transportation plans from Metro.

“In the short term, most companies won’t do anything to change their office space and they’ll see how everything plays out,” Kelly said. “The impact on the office market will come down to how each business fares after the pandemic. D.C. tends to do better than most areas in a recession, so we may see people move here, especially because our local economy is fueled by government spending.”

Kelly anticipates that most workplaces will take a more flexible approach to remote work in the future but with people working together in offices to collaborate most of the time.

“From an office standpoint, Amazon has deep pockets and won’t walk away from all the capital and resources invested in the new headquarters,” Ressler said. “While some people have the ability to work from home, younger workers and Amazon itself rely on a more collaborative approach to work. The company also relies on creativity, which typically required people working together. I think there’s likely to be a hybrid approach with cohorts coming in to work on projects that will keep the buildings being used.”

For National Landing, it’s important to recognize that this is a decade-long plan with even the first phase not complete until 2023, LeBarton said.

“Ultimately, we want to be part of what brings people back to cities and to urban density,” Kelly said. “We’re bullish on cities over the long term.”