Amazon to remove industrial space in warehouse strategy reversal

Andy Jassy, ​​CEO of Amazon (Getty Images, iStock)

Amazon is looking to put more to market than its offerings as a one-stop mall, apparently backing away from some industrial real estate.

The e-commerce giant is looking to sublet at least 10 million square feet of warehouse space, people familiar with the situation told Bloomberg. The company could also end some of its leases with landlords, another strategy to get rid of the space it has amassed during the pandemic.

Amazon may seek to sublet up to 30 million square feet, a source told the outlet, but the final volume remains in flux. The company’s excess space is located in New York, New Jersey and California.

Amazon added a huge amount of warehouse space during the pandemic amid an e-commerce boom. The ten million square feet that would be on the company’s chopping block would equate to roughly 5% of the space Amazon has reclaimed over the past two years.

“Subletting is a very common real estate practice,” an Amazon spokesperson told Bloomberg, declining to say where or how much space the company would be subletting.

The subletting seems to have already started. West Coast trucking company Dependable Highway Expres recently subleased a 300,000 square foot industrial facility to Amazon in the East Bay, a five-year sublease that will likely run through the end of the direct lease from Amazon on the property.

Amazon’s withdrawal from the industrial sector began last month, when CEO Andy Jassy said in an earnings statement that the company was “no longer looking for physical capacity or staffing.” The CFO added that excess capacity cost the company about $2 billion in the first quarter alone; the company posted a net loss of $3.8 billion in the first quarter, its first quarterly loss since 2015.

By the end of 2019, Amazon had leased or owned approximately 192 million square feet of warehouse, distribution, and data center space. Two years later, it reported 387.1 million square feet, more than doubling its footprint.

Amazon’s withdrawal from industrial real estate could have a chilling effect on a market, which has been tight for the space in recent years. The chilling effect may be exacerbated by Amazon’s decision to sublet; not only do tenants not have to compete with the company for space, but they can take the space directly from the competitor, which risks locking up vacancy rates.

The industrial real estate sector probably hasn’t seen the last of Amazon, which is reportedly looking to sublet some of its space for just one or two years, meaning it could soon be back in the game.

[Bloomberg] —Holden Walter-Warner