Amazon seeks to end warehouse subletting as online sales cool

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Amazon seeks to end warehouse subletting as online sales cool

Bloomberg — Faced with increased storage capacity now that the pandemic-era growth of online shopping has faded, Amazon.com Inc. is looking to sublease at least 10 million square feet of space and could vacate even more as leases with landlords end.according to people familiar with the situation.

The excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta, the people said, who requested anonymity because they are not authorized to discuss the deals. This could be well over 10 million square feet, two of the people said, with one saying it could be triple that. Another person close to the deliberations said that a final estimate has not been reached on the square meters that will be vacated. And that number is still changing.

Amazon could seek to negotiate termination of leases with existing landlords, including Prologis Inc, an industrial property developer that counts the e-commerce giant as its largest tenant, two of the people said.

In a sign that Amazon is being careful not to cut back too much in case the demand recovers quickly, the 10 million square feet the company is looking to sublease is roughly equivalent to about 12 of its largest fulfillment centers or about 5% of the added square feet during the pandemic. In another sign that Amazon is hedging its bets, some of the sublease terms are expected to last only a year or two.

The company would not say what space it plans to sublease or confirm the amount.

“Subleasing is a very common real estate practice,” spokeswoman Alisa Carroll said. “It allows us to alleviate 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.”

Prologis declined to comment.

Amazon spooked investors last month after reporting slowing growth and a weak earnings outlook. which he blamed on over-construction during the pandemic as home buyers stormed online. By the end of 2021, Amazon leased 370 million square feet of industrial space in its home market, double what it had two years earlier.

In its April earnings report, the company said it expected excess space to contribute to $10 billion in additional costs in the first half of 2022. The company did not disclose how much excess space it had, or where it was. located, or what he intended to do with it. Subleasing excess space is a way for Amazon to cut costs on space it no longer needs.

Amazon commissioned real estate company KBC Advisors to assess the warehouse network and determine where to sublet and where to terminate leases, two of the people cited said. Both options carry costs. Subletting a warehouse requires Amazon to remove all of its equipment so that the new occupant can adapt it to their own needs. Terminations of rental contracts usually require the tenant to pay a percentage of the rent that would correspond to him during the entire term of the agreement.

It shouldn’t be hard to find tenants. The vacancy rate for industrial space is below 4%, an all-time low, and rents are up 17.6% at the end of 2021, according to a February report from Prologis.

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