Amazon Plans To "Moderate" Industrial Real Estate Spending
The e-commerce giant, which has doubled the size of its logistics network in the past two years, signals it will have a smaller appetite for buying industrial properties and will reduce its reliance on leased warehouse space in 2022.
Amazon CFO Brian Olsavsky has sent a strong signal to CRE investors that they shouldn’t count on the e-commerce giant to drive industrial real estate markets in 2022 by purchasing industrial properties for use as last-mile distribution centers or by absorbing the lion’s share of leased warehouse space.
In a 4Q earnings call with analysts late last week, Olsavsky said Amazon would continue spending about 40 percent of its capital on building internet networks and systems; 25 percent on transportation assets; and about five percent on office and retail construction, but it but would taper the 30 percent of capital investment it’s been earmarking to expand fulfillment capacity.
“We see that moderating,” Olsavsky said, adding that Amazon’s ongoing investment in fulfillment capacity expansion will be adjusted to match (rather than exceed) the growth rate of its underlying businesses.
The company will continue building new fulfillment centers at a rapid clip to fulfill its same-day delivery promise to Prime customers, but it’s expected to pare back purchases of industrial properties and leasing activities. Amazon spent an estimated $25.4 billion on leased property and equipment and $5.8 billion on build-to-suit development of fulfillment centers in 2021.
Amazon fueled the rise of industrial warehouses as an institutional investment asset class during the past two years by leasing millions of square feet in industrial warehouses and gobbling up industrial properties in cash purchases for use as distribution centers.
Amazon led a binge that saw the 25 largest U.S. retailers acquire 38 million SF of rentable space in industrial properties in 2020, up from 18.8 million SF in 2019. The spending spree lifted industrial sector property values by 39 percent between October 2020 and October 2021, compared to an average CRE property growth of 20 percent during the same period, according to data analytics firm Green Street.
In the Greater Boston area, for example, Amazon leased more than half of all new industrial construction in the region in 2020, driving up industrial rents by more than 10 percent. Shifting its strategy from leasing to purchasing industrial properties in 2021, Amazon opened 25 new delivery facilities by buying up warehouses ranging in size from 26K SF to 829K SF in the Boston suburbs.
According to Montreal-based logistics consultant MWPVL, Amazon is by far the US leader in overall warehouse capacity, with nearly 350M SF of active space and another 125M SF in the pipeline; Walmart is second with 147M SF. Amazon is the largest corporate owner of US industrial space with 78 properties spanning an estimated 84 million SF.
The top US retailers still lease nearly three times the amount of industrial warehouse space they own, but this gap is narrowing as Walmart, Costco and other retail giants increase their purchases of industrial space.