Amazon Reportedly Ready to Dump Excess Warehouse Space

Amazon has been a driving force for good rates in the hot industrial arena, often paying 50% to 60% above market to get the space they wanted. Investors were paying a 35% premium last fall when the retail giant was a tenant. Those heady days may have come to a sudden halt as a slowing of e-commerce back to pre-pandemic trends has left Amazon with a surfeit of warehouse space according to a Bloomberg report.

“The excess capacity includes warehouses in New York, New Jersey, Southern California, and Atlanta, said the people, who requested anonymity because they’re not authorized to speak about the deals,” the report noted. “The surfeit of space could far exceed 10 million square feet, two of the people said, with one saying it could be triple that.”

Even 10 million square feet would only be about 5% of the space added during the pandemic, according to the Bloomberg analysis. A GlobeSt.com review of Amazon’s annual reports show that splitting out warehouses by themselves is next to impossible with public information because fulfillment, data centers, and others are grouped together. Third-party data based on transactional information might offer more granular insight.

At the end of 2019, Amazon leased 153,917,000 square feet and owned 4,476,000 square feet of the fulfillment, data center, and other categories in North America for a total of 158,393,000 square feet By the end of 2021, that had ballooned to 370,392,000 leased and 16,663,000 owned in North America, 387,055,000 altogether for a growth of 228,662,000 square feet—a 144% increase, although some significant portion of the growth would have likely occurred anyway even without the pandemic. A 5% release of space of that amount, which includes more than warehouses, would be 11,433,100 square feet.

Such an opening would be welcome to many. Industrial construction completions sunk by 27.8% in the first quarter of 2022 because of materials and labor shortages. As a result, average warehouse asking rents were up 18.9% year over year, hitting a record high $8.94 per square foot. Office-to-industrial conversions are expected to increase this year. In some areas, the shortage of space is at a critical level. For example, there is almost no industrial space in the Inland Empire.

At the same time, depending on the market, there are other types of space where Amazon continues to acquire, like Southern California office space, where it recently signed leases for a combined 439K SF of office space in Santa Monica, Irvine, and San Diego.