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In an effort to shed its excess warehouse capacity and shore up its bottom line, Amazon has reportedly made plans to sublet at least 10M SF in warehouse space across several key markets — including Atlanta, New York, New Jersey and Southern California — with plans to potentially vacate triple that number.
Sources speaking anonymously to Bloomberg said the company may even attempt to negotiate ending existing leases.
If Amazon indeed lets go of 10M SF of warehouses, it would represent only 5% of the space it added over the last two years, Bloomberg said. It also reported Amazon is being cautious by considering short sublease periods of one or two years in case it sees demand to expand again soon. E-commerce sales are down from their early 2020 peak but are fluctuating quarter-over-quarter and are still well above pre-pandemic levels.
“Subleasing is a very common real estate practice,” Amazon spokeswoman Alisa Carroll told Bloomberg. “It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs. Subleasing is something many established corporations do to help manage their real estate portfolio.”
The move isn't wholly surprising for a number of reasons. Signs have been pointing to Amazon shifting away from its strategy of leasing warehouses for some time, as reported by Bisnow in late 2021. Wharton Equity Partners founder and Chairman Peter Lewis discussed Amazon’s increased wariness toward leasing activity at a Bisnow event in November.
“We're seeing them actually pull out of these potential lease engagements in a number of cities,” Lewis said. “I think you have to be leery if you're engaging with Amazon today in lease discussion. Don’t bank anything on that they are going to show up at closing.”
Now it has gone beyond a real estate strategy shift to an actual detrimental oversupply of property. Amazon Chief Financial Officer Brian Olsavsky said during an earnings call in February that the company would begin to lessen its investments in physical warehouses.
And in April, Olsavsky said the company’s hiring and inventory push spurred on by the coronavirus pandemic was impacting its bottom line, noting the company had more space than it needed and had gone from being understaffed to overstaffed.
The real estate industry has been closely watching this tension build, as Amazon has been a massive demand driver to the industrial sector and a major moneymaker for landlords when it was leasing aggressively. Duke Realty, for example, took note of Amazon’s pullback, easing off of its exposure to the company and predicting that other companies would step in to pick up the e-commerce giant’s slack. Amazon is also the largest tenant for Prologis.
Amazon has tapped KBC Advisors to rightsize its portfolio via subleasing or lease terminations. KBC was founded in 2016 and for years primarily — and quietly — handled Amazon's real estate decisions around the country. But the firm has been expanding quickly, making significant hires and potentially positioning itself to diversify.
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