Amazon to scrap industrial properties in warehouse strategy flip

Company looking to sublet more than 10M sf of industrial space

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

Amazon is looking to put more on the market than its offerings as a one-stop shopping hub, reportedly backing off a chunk of 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 shed the space it amassed during the pandemic.

Amazon could look to sublet up to 30 million square feet, one source told the outlet, but the final volume remains in flux. The company’s excess space is 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 reportedly reportedly on the company’s chopping block is roughly equivalent to 5 percent of the space Amazon has picked up in the past two years.

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

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

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

At the end of 2019, Amazon had leased or owned about 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 retreat from industrial real estate could have a cooling effect on a market, which has been tight for space in recent years. The cooling 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, potentially stalling vacancy rates.

The industrial real estate sector has likely not seen the last of Amazon, which is reportedly looking to sublet some of its space for only one or two years, meaning it could be back in the game soon.

[Bloomberg] — Holden Walter-Warner