Amazon Decreases Commercial Leasing by One Million Square Feet
Amazon, the global e-commerce and tech giant, has seen a decrease in its commercial leasing by approximately one million square feet, according to its annual report. The company’s leased square footage for office properties in North America dropped from 30.6 million at the end of 2022 to nearly 29.7 million at the close of 2023. However, the firm’s international office leases have increased slightly. Overall, Amazon’s total leased square footage for all of its occupied properties, including office space, physical stores, fulfillment and data centers, has increased from 617 million square feet in 2022 to 664 million square feet in 2023.
Amazon Exits Leases in Puget Sound Region
Amazon has notably chosen to exit leases in the Puget Sound region, specifically in Seattle. The company decided not to renew a lease spanning 209,000 square feet in a tower located at 1800 Ninth Ave. in downtown Seattle. This lease had lasted for a decade, and Amazon plans to relocate the 1,100 employees based there to other offices. Additionally, Amazon terminated a 17,000 square foot lease at 224 Westlake Ave. N. in Seattle’s South Lake Union neighborhood, which marked the conclusion of a 15-year agreement.
Restructuring Logistics Footprint and Distribution Centers
In recent years, Amazon has made significant changes to its logistics footprint in the United States. The company has withdrawn from over 14 million square feet of distribution space, representing approximately 3 percent of its U.S. logistics footprint. This strategy aimed to optimize its logistics operations and reduce operational costs associated with older, less-efficient facilities. As part of this move, Amazon has put more than 30 of its distribution centers, built before 2010, back on the market for lease.
Challenges in the Commercial Real Estate Market
The commercial real estate market is facing challenges, particularly in leasing, as businesses look to reduce real estate costs and adapt to changing work paradigms. CRED iQ’s recent analysis showed that around 217 million square feet of office space across the United States is on the brink of lease expirations in 2024 and 2025. This trend, coupled with record-high office vacancies, is reshaping the office sector. Major West Coast metropolitan areas, including Los Angeles, San Diego, the Bay Area, and the Puget Sound region, are facing millions of square feet in lease expirations over the next few years.
Lease Expirations in West Coast Metropolitan Areas
West Coast metropolitan areas are particularly affected by expiring leases. The Los Angeles-Long Beach-Santa Ana region is expected to see 51.9 million square feet in lease expirations, while the San Diego-Carlsbad-San Marcos area will have 8.7 million square feet. In the Bay Area, the San Francisco-Oakland-Fremont region will see 30.3 million square feet potentially come to an end, and the San Jose-Sunnyvale-Santa Clara area will see lease expirations for 18 million square feet. In the Puget Sound’s Seattle-Tacoma-Bellevue area, 20.3 million square feet in leases are scheduled to conclude.
Conclusion
As Amazon decreases its commercial leasing and makes changes to its logistics footprint, the commercial real estate market is facing challenges from expiring leases and a trend towards downsizing and non-renewal among office tenants. Major West Coast metropolitan areas are particularly affected, with millions of square feet in lease expirations projected over the next few years. It remains to be seen how the office sector will adapt to these changes and navigate economic uncertainties in the coming years.
Analyst comment
Negative – The news indicates that Amazon has decreased its commercial leasing by one million square feet and is exiting leases in the Puget Sound region. This suggests a trend towards downsizing and non-renewal among office tenants. As a result, the commercial real estate market, particularly in major West Coast metropolitan areas, is facing challenges from expiring leases and record-high office vacancies. In the coming years, the office sector will need to adapt to these changes and navigate economic uncertainties.
