Amazon says it has too much warehouse space. What's that mean for the broader industrial market?

Amazon says it has too much warehouse space. What's that mean for the broader industrial market?

Article Originally Posted By PhoenixBusinessJournal On May 4, 2022 Inc., the undisputed king of the U.S. industrial market since well before the Covid-19 pandemic, may finally have reached max capacity on warehouse and fulfillment space.

Executives at the Seattle-based e-commerce giant in its first-quarter earnings call last week said the company currently has excess capacity in its fulfillment and transportation network. In Q1, Amazon posted its first financial loss, of $3.8 billion, since 2015.

"Capacity decisions are made years in advance, and we made conscious decisions in 2020 and early 2021 to not let space be a constraint on our business," said Brian Olsavsky, chief financial officer at Amazon, during the 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."

Amazon's real estate footprint

Amazon took what was already a robust leasing-and-ownership pipeline to new levels since the pandemic, as online ordering accelerated as people stayed home.

The e-commerce company doubled its real estate footprint that includes data and fulfillment centers (but not office space or physical stores) between the end of 2019 and the end of 2021, according to figures in Amazon's 10-K disclosures. Its footprint for that type of space measured 192.7 million square feet at the end of 2019, compared to nearly 387.1 million square feet at the end of 2021, with a bulk of that space leased rather than owned.

Amazon represented about 15% of net absorption and new demand in U.S. industrial last year, said Vince Tibone, senior analyst at Newport Beach, California-based commercial real estate analytics firm Green Street Advisors Inc. That's a material share of a real estate sector that's seen unprecedented growth from every corner of the market.

A spokesperson for Amazon declined to comment when asked by The Business Journals about the company's industrial deals currently in the pipeline and how much warehouse square footage it planned to add in the future. The spokesperson referenced a shareholder's letter sent by CEO Andy Jassy, which said the company had 253 fulfillment centers, 110 sortation centers and 467 delivery stations in North America at the end of 2021.