Home Depot Sheds Warehouses as Retail Markets Shift

Home Depot is a company whose fortunes rode high during the pandemic. If people couldn’t get out and about or move to a new place, they would certainly fix the old one up. Sales in fiscal years ending around the end of January went from $132.1 billion in 2021 to $151.2 billion in 2022, $157.4 billion in 2023, and then $152.7 billion in 2024.

The run on home improvement wasn’t going to last forever, and neither was the need for extra warehouse space, as the Wall Street Journal recently reported. Home Depot is looking to sublease four warehouses totaling about 4.7 million square feet in space that it had been using in Monroe, New Jersey; Goodyear, Arizona; Joliet, Illinois; and Riverside, California. When supply chains were in tangles, the company had been bringing in additional inventory from Asia and it had to go somewhere.

But those days are over because the market’s needs are different now. As the Journal noted, low sales of existing homes and higher interest rates have put a damper on renovations and repairs. Less need and higher costs will do that.

It shouldn’t be a surprise. Previous signs have shown the almost inevitable need for pandemic winddowns. In the fall of 2022, Amazon, which had doubled its logistic network as a jump in e-commerce when stores were closed, cut 53 million square feet from its warehouse footprint. It shuttered warehouses, subleased a block of its leased industrial space, canceled new fulfillment center projects that haven’t broken ground, and delayed the opening of newly built warehouses for up to two years.

However, it can be hard to ultimately see what companies are doing when change is happening quickly. A May 2024 GlobeSt.com analysis of Amazon financial filings showed that while the pace of growth in real estate has slowed over the last few years, it’s never dropped below zero. The year-over-year changes from 2020 through 2023 in all real estate leased or owned by Amazon were: 2020 (50.3%); 2021 (30.0%); 2022 (6.1%), and 2023 (5.3%).

The national industrial vacancy rate has climbed by 30 basis points during the third quarter to reach 6.4%, according to Cushman & Wakefield’s latest industrial segment research. That is the lowest quarterly increase in vacancy since the fourth quarter of 2022 and yet is still below the 10-year pre-pandemic average of 7%. Industrial is on pace to absorb more than 100 million square feet in 2024.

So, what is likely happening is a rightsizing of warehouse space as retail markets shift. But that doesn’t mean overall wholesale reduction.