​​Hughes Marino Dissects Why Amazon’s Rapid Expansion Could Be Coming to a Screeching Halt

Hughes Marino is a tenant representation firm rooted in commercial property expertise and emphatically plugged into the latest industry trends. Hughes Marino Senior Executive Vice President David Marino says he’s witnessed multiple cycles during his 33 years in the sector, and a close look at historical precedent can lend understanding to current trends, like the impact behemoths like Amazon have and continue to have.

Marino observes that “​​the late ’80s were driven by an oversupply of capital and loose lending, causing an oversupply of speculative office and industrial space.

“​​You had this huge, unprecedented surge of construction across the country, particularly in downtown high-rises. And the recession of the early ’90s came along and caught everybody flat-footed, and pretty much every office market around the country overnight was 20% to 30% vacant because of all this speculative office space under construction with demand that never caught up.”

In 2000, as multiple tech companies blossomed, more office space was popping up in suburbs and downtown areas. 

Despite many tech firms becoming collateral damage by 2001, Amazon was able to escape the doom, and bloom into an empire few bet on initially.

Headquartered in Seattle with more than 1,600,000 employees globally, Amazon has more than 1,200 facilities throughout the U.S. In 2021, Amazon profits surged by 220% year over year and it was one of the few businesses to benefit from the COVID-19 pandemic, as many people shifted to the safety and convenience of Amazon deliveries over in-person shopping. 

Last April, Amazon CEO Andy Jassy said the year-over-year growth of 39% that Amazon experienced during the initial days of the pandemic in 2020 “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.”

Hughes Marino Exec Reflects on Amazon’s Global Impact 

Jeff Bezos famously said there’s nothing about his company’s model that can’t be copied over time. The rapid clip of Amazon’s expansion, however, outpaced the existing supply of warehouse space around the U.S. Marino says Hughes Marino has been keeping an eye on the brand since its inception.

Marino notes that during COVID, Amazon leased another few hundred million square feet of warehouse space across America.

“Amazon has now announced that they are actually going to be retrenching,” he explains. “They’re going to try to move to more owned real estate than leased real estate, which is good for Amazon’s balance sheet and potential earnings — but means they are going to be dumping out of leased buildings.” 

And with accelerated growth, Marino warns that mishaps are bound to happen. “Amazon has matured and online purchasing has settled down,” Marino says. “I have to believe someone at Amazon realized that a lot of these buildings are excess or that the demand didn’t support them, or they are just strategically in the wrong places.”

As the pandemic began to taper off, so did Amazon’s sales. Amazon’s Q1 2022 saw a 3% dip in sales. While Hughes Marino doesn’t represent Amazon, the tenant representation specialist says Amazon has ceased growing as a tenant and publicly announced that it will be subleasing some of its real estate. He says this news is jarring to many landlords who were cashing in on multimillion-square-foot warehouse leases. That, coupled with rising inflation and the looming fears of a recession, is causing apprehension within the commercial property market, according to Marino. 

Marino mentions that Amazon is now shrinking its fleet of warehouse space. The delivery giant ditched plans to launch 42 facilities totaling almost 25 million square feet of space, most of which will come to the market for sublease. Last May, Amazon was also gearing up to sublease at least 10 million square feet, but Marino says the space was likely even larger.

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It’s a slippery slope attempting to sublease Amazon’s typically mammoth spaces that can span more than 20 football fields. 

Thanks to the enormity of these spaces, finding viable tenants is tricky.

Experts agree. New Jersey City University fire science professor Walter Nugent told a PBS affiliate it’s not probable that a single tenant would take the bait, indicating multiple tenants would be needed — causing additional hiccups.

Marino adds Amazon would then face challenges inking long-term leases and taking financial hits by offering discounts. It could also potentially add to building renovation or restructuring fees. 

“In my opinion, we are in a time where industrial rents are going to stop growing like they have been over the past three years as the online retail explosion and Amazon’s related growth is no longer fueling the demand,” Marino says.

This means the party is likely over when it comes to leasing space to Amazon. And while it will still differ depending on which market is being studied, Amazon’s large-scale pullback is likely to create a ripple effect throughout the nation. 

California, New York, Atlanta, and New Jersey have already been added to Amazon’s portfolio of subleases. Marino says it will be interesting to see what happens to the leftover warehouse space over time.

Amazon has had an undeniable impact on the art of subleasing, setting a new precedent for leasing warehouse space. The Amazon effect also nudged other businesses to get caught up in the turbulence of rising industrial rents.

Over the past two years, Amazon dished out more than $2.3 billion on more than 5,000 acres of land. It will continue to be a wait-and-watch game for landlords throughout 2023 as consumer demands continue to evolve. 

Amazon’s bloodletting doesn’t stop at subleasing its leftover warehouse space. The New York Times reported that the Bezos-built empire will be saying goodbye to 18,000 workers in corporate and tech roles. The latest layoffs are set to take place on Jan. 18. It’s a move that will unapologetically annihilate 6% of Amazon’s workforce. Amazon isn’t alone in its recent job cuts. It joins fellow tech royalty Meta and Twitter in the latest layoff trend. 

“These changes will help us pursue our long-term opportunities with a stronger cost structure,” Jassy wrote in a recent message to Amazon staffers. “However, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles.”