Amazon’s slowdown in expansion and subleasing of some of its warehouse properties is causing turmoil in the market for commercial warehouse properties. This is yet another sign of the uneasiness corporations are feeling with Joe Biden’s economy. Peter Grant reports at The Wall Street Journal:
Amazon. com Inc.’s decision to throttle back on its e-commerce operations threatens to slow the growth of the industrial-space sector, one of the hottest areas of commercial property.
For now, demand from other retailers is expected to pick up the slack, supporting warehouse occupancies and rent levels, analysts say.
Rents, occupancy levels and sales volume of industrial real estate were already rising before Covid-19. They have soared even higher during much of the pandemic, as retailers led by Amazon, Walmart Inc. and Target Corp. gobbled up record amounts of space at warehouses and distribution centers.
These growth trends are slowing in some markets, in part because Amazon is now subleasing warehouse space after reporting in April its slowest growth in about two decades. Amazon is one of the largest users of U.S. industrial space, owning or leasing some 374 million square feet at the end of 2021, according to MWPVL International Inc., a Canadian supply-chain consultant that tracks Amazon demand.
The company went on an expansion tear during the pandemic to make sure it could keep up with the sharp rise in demand from homebound consumers. Its slowdown is likely to disappoint some developers who had been hoping to lease projects under way to Amazon.
Property owners in some markets might also face new competition from Amazon’s plan to sublease at least 10 million square feet of warehouse space, and possibly as much as triple that amount over time, as well as a flood of new supply from developers responding to the strong industrial market. Before the Amazon news, real-estate-analytics firm Green Street had been projecting about 400 million square feet of new industrial development in 2022.
Amazon’s sublease space “is a new form of supply,” said Vince Tibone, a Green Street analyst. “All of a sudden, a lot of it just became unleashed.”
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