Amazon is looking to right-size its industrial real estate network through a combination of subleases and is also reportedly eyeing early lease terminations in some cases.
The news was first reported by Bloomberg, with the outlet citing anonymous sources that said Amazon is looking to sublease as much as 10 million square feet of warehouse space. The report also raised the possibility of the e-commerce company walking away entirely from some leases, freeing up additional square footage.
Southern California, New York, New Jersey and Atlanta were cited in the report as markets where Amazon’s real estate portfolio is particularly bloated.
“Subleasing is a very common real estate practice,” Amazon spokesperson Alisa Carroll said in a statement provided to Sourcing Journal on Monday. “It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs. Subleasing is something many established corporations do to help manage their real estate portfolio.”
Carroll declined to confirm whether early lease terminations, as reported by Bloomberg, are also being considered.
BigRentz, an online construction rental equipment marketplace, released a report in January saying Amazon’s warehouse network of currently operating facilities and planned projects totaled roughly 319 million square feet at the end of last year. The company’s fulfillment centers average about 800,000 square feet per facility.
The amount of space Amazon’s looking to sublet would represent about 3 percent of the overall network.
Amazon had the most space, nearly 32 million square feet, located in California, according to the BigRentz report. That was followed by Texas, with 27.5 million square feet, and Illinois rounding out the top three with 14.8 million.
The real estate news isn’t necessarily a surprise.
Amazon’s fulfillment network ballooned in a short amount of time, doubling in two years a network that had taken 25 years to develop.
“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” CEO Andy Jassy said to investors in a statement in late April at the time of the company’s first quarter report. “We know how to do this and have done it before.”
Chief financial officer Brian Olsavsky echoed the sentiment, telling analysts during the company’s earnings call that the fulfillment network had ballooned in response to the business surge seen during Covid.
A correction now appears in order as the company looks to tame costs and size the fulfillment network in line with consumer demand and its workforce.
The company noted a softening of warehouse productivity in the later part of the first quarter, stuck with too many workers that had been hired to cover shifts left vacant during the omicron variant’s surge. However, Olsavsky said the productivity situation showed signs of improvement in the remaining weeks of the recently ended quarter.
“Despite still seeing strong customer demand and expansion of our [Fulfillment by Amazon] business, we currently have excess capacity in our fulfillment and transportation network. Capacity decisions are made years in advance, and we made conscious decisions in 2020 and early 2021 to not let space be a constraint in our business,” Olsavsky said during the April earnings call. “During the pandemic, we were facing not only unprecedented demand but also extended lead times on new capacity. And, we built toward the high end of a very volatile demand outlook. Now that demand patterns have stabilized, we see an opportunity to better match our capacity to demand.”
He went on to tell analysts the company was working on finding the balance between “having the right capacity and the right demand matched at the warehouse level and the transportation node level.”
The CFO didn’t go into detail during the call on how that balance is being struck or the markets where the company is holding too much real estate.
Amazon shares ended trading Monday about flat to $2,151.14. The company had a recent market cap of $1.1 trillion.