Amazon aims to sublet and end warehouse leases as online sales cool
Amazon.com Inc., stuck with too much warehouse capacity now that the surge in pandemic-era shopping has subsided, is looking to sublet at least 10 million square feet of space and could free up even more by ending leases with landlords, according to people familiar with the situation.
The excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta, said the people, who requested anonymity because they are not authorized to speak about the deals. The excess space could be well over 10 million square feet, two people said, with one saying it could be triple that. Another person familiar with the deliberations said a final estimate of the area to be released had not been reached and the figure was still evolving.
Amazon could try to negotiate lease terminations with existing landlords, including Prologis Inc., an industrial real estate developer that counts the e-commerce giant as its largest tenant, two of the people said.
In a sign that Amazon is careful not to cut too deep if demand rebounds quickly, the 10 million square feet the company is seeking to sublet is roughly equivalent to about 12 of its largest fulfillment centers or about 5% of the area added during the pandemic. In another signal that Amazon is hedging its bets, some of the sublease terms would last only one or two years.
The company declined to say what space it plans to sublet or confirm the amount.
“Subletting is a very common real estate practice,” spokeswoman Alisa Carroll said. “This allows us to alleviate the financial obligations associated with an existing building that no longer meets our needs. Subletting is something that many established companies do to help manage their property portfolio.
Prologis declined to comment.
Amazon spooked investors last month after reporting slowing growth and a weak profit outlook that it attributed to overbuilding during the pandemic when home shoppers stormed online. By the end of 2021, Amazon was renting 370 million square feet of industrial space in its home market, twice as much as two years earlier.
In the April earnings report, the company said it expected excess space to contribute $10 billion in additional costs in the first half of 2022. The company did not disclose its overcapacity. , where she was or what she planned to do with it. Subleasing excess space is a way for Amazon to reduce the costs of space it no longer needs.
Amazon has commissioned real estate firm KBC Advisors to assess the warehouse network and determine where to sublet and where to terminate leases, two of the people said. Both options incur costs. Subleasing warehouse space requires Amazon to remove all of its equipment so that the new occupant can adapt it to their own needs. Lease terminations generally require the tenant to pay a percentage of the rent that would be due over the entire term of the contract.
It shouldn’t be hard to find tenants. The vacancy rate for industrial premises is below 4%, an all-time low, and rents rose 17.6% at the end of 2021, according to a February report from Prologis.
Spencer Soper reports for Bloomberg News.