Here's How Much New Space Amazon Needs, And Just How Much Investors Will Pay For It
Amazon warehouses have become a real estate asset class all on their own, such has been the speed and scale of the company’s growth. Two recent research reports put some hard numbers behind this trend.
In an analysis of the European industrial and logistics market, real estate research firm Green Street charts the link between Amazon’s revenue from e-commerce and its requirement for warehouse space.
For every €1B (£860M, $1.2B) of new online sales, Amazon needs between 720K SF and 1.2M SF of new space, depending on the European country, Green Street estimated.
Given Amazon’s European sales have risen from €100B in 2013 to more than €450B in 2020, that has meant an increase in floorspace from 100M SF to more than 300M SF in seven years.
Amazon warehouses are getting more efficient, so in future new sales won’t require as much new space, Green Street said. But it added that there are only five shopping centres in the whole of Europe that are more efficient when retail sales per SF are measured.
This growth has created investment product that buyers are hungry to snap up.
Data from Real Capital Analytics showed that in 2020, 63 single-leased properties let to Amazon were traded in the U.S., and 26 in Europe, a record. Those properties traded for a combined $6.5B (£4.7B), or 6% of all industrial properties.
So far this year, $2B worth of Amazon properties have traded in the U.S. and Europe, a slightly slower run rate. But it said insurer Allianz paid $898 per SF for a last-mile delivery unit in Vienna, the highest price per square foot paid for a European industrial property in more than six years.
RCA’s U.S. construction data showed that 48 Amazon-let warehouses totalling 49.7M SF are currently being built, and if all of those are sold, they would have an estimated value of $6B. The biggest of these is a 3.9M SF warehouse in northern Delaware, within the Philadelphia metro. The warehouse is being built by Dermody Properties in a joint venture with two Korean investors, Korean Teachers’ Credit Union and IGIS. Emblematic of the shift in modern capitalism, it is being built in place of a former General Motors assembly plant.
In Germany, 11 warehouses are under construction and let to Amazon, and in the UK, there are two properties.
Buyers are willing to pay up for warehouses with Amazon as tenant, RCA said. A pricing analysis on the U.S. logistics market showed that when one controls for factors such as property location, size and age, investors will pay a premium of around 8% for an Amazon-let property. That’s about half a percentage point when it comes to the yield.
“The existence of such a premium is not a surprise,” RCA said. “The scale and nature of Amazon’s business means its warehouses are always going to be sought after in the current investment climate, which prioritizes secure income in sectors with positive tailwinds. This is unlikely to change for the foreseeable future.”