Stuck with too much warehouse capacity now that the surge in pandemic-era shopping has faded, Amazon.com Inc. is looking to sublet at least 10 million square feet of space and could vacate even more by ending leases with landlords.
The excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta. The surfeit of space could far exceed 10 million square feet, 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.
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.
Amazon is being careful not to cut too deeply should demand quickly rebound, the 10 million square feet the company is looking to sublet is roughly equivalent to about 12 of its largest fulfillment centers or about 5% of the square footage added during the pandemic. In another signal that Amazon is hedging its bets, some of the sublet terms would last just one or two years.
Subleasing surplus space is one way for Amazon to trim costs on space it no longer needs. Amazon tasked the real estate firm KBC Advisors to evaluate the warehouse network and determine where to sublet and where to terminate leases, both options carry costs.
Subletting warehouse space requires Amazon to remove all of its equipment so the new occupant can tailor it to their own needs. Lease terminations typically require the tenant to pay a percentage of the rent that would be due over the full term of the agreement.
In the April earnings report, the company said it expected the excess space to contribute to $10 billion in extra costs in the first half of 2022. The company didn’t divulge how much over-capacity it had, where it was located or what it planned to do with it.
