What does the slowing of Amazon opening new fulfillment centers mean?

Amazon is delaying its industrial real estate footprint due to supply chain issues, slowing growth, and decreased need to store inventory. They are postponing the opening of their $200M San Antonio, TX and several others in Iowa, Texas, and Tennessee. In attempt to recover their warehouse and distribution facility expenses, Amazon will be putting 10M to 30M square feet of space on the sublease market in Atlanta, New York, New Jersey, and Southern California. Over the last 24 months, Amazon has been playing catch-up with consumer demand by growing its facility footprint by 30%. They have finally felt the global supply chain issues consumers have been experiencing with other retailers.

At CARMEN, we believe the delay in opening these facilities may eventually result in cancelations of some of these leases. Amazon’s rapid growth was in anticipation of consumer demand, not considering global supply chain issues. By the nature of its size, the company will likely be the most affected of major retailers with their “land grabbing” growth to take as much retail and ecommerce market share as possible. It will be interesting to see how this pans out and how competitors will react to prevent real estate overspending.

As it goes, someone’s loss often results in someone else’s gain. The U.S. warehouse market has been a landlord’s market over the past few years. With so much space hitting the sublease market at the same time, the warehouse market should soften a little, which should result in marginally lower rents. Also, many Industrial developers had taken land positions with the hope of picking up an Amazon facility. This will be painful for smaller developers who can’t afford to hold the land, which will likely benefit the larger and better capitalized developers, who will be able to take over those land positions at a discount while waiting for supply chain corrections.

Click here to read an interesting article from BizNow.com that talks about the same subject.

Header image by EFAFLEX_Schnelllauftore from Pixabay