Amazon Is Looking to Sublet 10 million square feet of Space
Bloomberg -- Amazon.com Inc. has too much warehouse capacity now that the surge in pandemic-era shopping has faded, and is looking to sublet 10 million square feet of space and could vacate even more by ending leases with landlords, according to people familiar with the situation.
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The surfeit of space could surpass 10 million square feet, two of the people said, with one saying it could be triple that. A final estimate on the square footage to be vacated hasn't been reached and the figure remains in flux, according to a person close to the deliberations.
Two people said 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 biggest tenant.
The 10 million square feet the company is looking to sublet is roughly equivalent to 12 of its largest fulfillment centers, or about 5% of the square footage added during the epidemic, a sign that Amazon is careful not to cut too deeply should demand rebound. Some of the sublet terms would last just one or two years, a signal that Amazon is hedging its bets.
The company didn't say what space it plans to sublet or confirm.
The practice of subleasing is very common in the real estate industry, spokeswoman Alisa Carroll said. It allows us to relieve financial obligations associated with an existing building that no longer meets our needs. Subleasing is something many established corporations do to manage their real estate portfolio. Amazon spooked investors last month after reporting slowing growth and a weak profit outlook that it blamed on overbuilding during the Pandemic when homebound shoppers stormed online. At the end of 2021, Amazon leased 370 million square feet of industrial space in its home market, twice as much as it had two years ago.
The company said in the April earnings report that excess space could contribute to $10 billion in extra costs in the first half of 2022. The company didn't say how much over-capacity it had, where it was located or what it planned to do with it. Subleasing surplus space is a way for Amazon to trim costs on space it no longer needs.
Amazon asked KBC Advisors to evaluate the warehouse network and determine where to sublet and terminate leases, two of the people said. Subletting warehouse space requires Amazon to remove all of its equipment so that the new occupant can tailor it to their own needs. The tenant will pay a percentage of the rent over the full term of the agreement when a lease termination occurs.
It shouldn't be hard to find tenants. The vacancy rate for industrial space is below 4%, a low for all-time lows, and rents were up 17.6% at the end of 2021, according to a February report from Prologis.
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