Amazon looks to sub-let warehouses as growth slows

repurposing logistics property

The fall-off in e-retail activity has been significant and this seems to have left Amazon with too much warehousing space. Several US-based press sources are reporting that Amazon is looking to sub-let space in its fulfilment centre network.

The news agency Bloomberg is stating that Amazon’s “excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta…the surfeit of space could far exceed 10 million square feet” with one anonymous person telling Bloomberg that it could be “triple that” whilst another said the “final estimate on the square footage to be vacated hasn’t been reached and that the figure remains in flux”.

This is not entirely a surprise. Amazon has been indicating that the market for e-retail had slowed and this was having implications for its physical network. Last month, Amazon’s CEO Andy Jassy commented that “our Consumer business has grown 23% annually over the past two years, with extraordinary growth in 2020 of 39% year-over-year that necessitated doubling the size of our fulfillment network that we’d built over Amazon’s first 25 years—and doing so in just 24 months. 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.”

Amazon is not the only company to be affected by the fall in demand for e-retail. UPS has registered a fall in e-retail volumes through its network and the e-retail grocery company Ocado saw sales in its retail business fall 5.7% year-on-year in Q1.

The clear implication is that the slowing market for e-retail is creating an overhang of capacity. Whether this will cool the rather heated warehousing market is far from certain. Logistics property developer Prologis continues to report high demand in many markets with supply still inadequate. However, they report that a good deal of this demand is driven by the need to manage congestion and problems of availability in supply chains. 

E-retail has driven the growth of a large part of the logistics market both a domestic level and, to a lesser extent, at a global level. Its growth prospects in both advanced markets and others will shape logistics markets in the short-to-medium term.

Source: Transport Intelligence, 24th May 2022

Author: Thomas Cullen

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