You may have heard that Amazon had to drastically scale back its warehouse square footage in recent months due to labor and energy cost increases.
Could the industrial market hit a peak in the near future? "Amazon Scales Back Expansion as It Copes With ‘Excess’ Warehouse Space" https://t.co/DWCkmk5PL6‘excess’-warehouse-space
— David Fitzpatrick (@_DavidFitz) May 5, 2022
CoStar News reported in April:
After adding millions of square feet of warehouse space and hiring tens of thousands of employees to meet a surge in online spending and home deliveries in the pandemic, executives at the e-commerce giant said the company has started scaling back the expansion of its vast warehouse and fulfillment network as labor and energy costs rise and revenue declines as consumers dial down online spending.
“We have some excess capacity in the network that we need to grow into, so we’ve brought down our build expectations,” Chief Financial Officer Brian Olsavsky said on a call to discuss the company’s first-quarter results on Thursday. “Labor and physical space are no longer the bottlenecks they were throughout much of 2020 and 2021.”
Executives said higher costs and declining e-commerce revenue contributed to a $3.8 billion loss for Amazon in the quarter ended March 31, its first quarterly loss since 2015, compared with an $8.1 billion profit in the same time last year.
Given Amazon’s scaling back of its warehouse space, that raises a peculiar question.
Why are they buying land all across the country in key markets?
One of the company’s most recent purchases was 193 acres of land located just outside of Round Rock, Texas.
Since Texas has lenient land-use laws, Amazon can use the massive parcel for virtually anything it wants.
So, what ideas does Amazon have up its sleeves?
Amazon Builds Property Empire, Quietly Buying Land Across the US https://t.co/HHrp7IZJHv
— Michael Bull, CCIM (@BullRealty) June 23, 2022
As SupplyChainBrain noted, Amazon’s land accumulation endeavors started about three years ago.
The company quietly began searching for property in key U.S. markets such as Southern California, Texas, Illinois, Florida and the Bay Area.
“Between 2020 and 2022, Amazon tripled the amount of built industrial space it owns in North America, according to company filings.”
Sometimes Amazon buys existing buildings, such as defunct call centers, but it also purchases bare land, of which the company acquired about 4,000 acres in the same period, says real estate researcher CoStar Group Inc. Amazon plans to use much of the real estate for a new generation of towering fulfillment centers that can store a wide variety of products close to customers in populous areas, according to people familiar with the strategy.
Buying land is a major shift for Amazon, which historically relied on a handful of developers to find property, build fairly simple warehouses and rent them back to the company. Now Amazon is increasingly taking parts of the development process in-house, often bidding against long-time partners for the best space.
It’s a potentially risky strategy that exposes Amazon to the vagaries of the industrial real estate market. The company also overbuilt during the pandemic and is saddled with too much warehouse space now that the surge in online shopping has decelerated. As a result, Amazon is looking to sublease space it doesn’t need and has slowed its warehouse expansion. “Like all companies, we’re adapting to the availability of real estate and location of our customer demand, and we’re also constantly evaluating our approach based on our financials,” spokesperson Kelly Nantel said in a statement.
But the company said there is no change in its long-term real estate strategy. Executives remain committed to securing land in the right locations to fulfill founder Jeff Bezos’ vision of making an online purchase as instantly gratifying as a trip to the store.
More than likely, the reason Amazon is gobbling all this land is to inch closer to people’s homes. If they don’t grab the land, retail competitors like Walmart Inc. will seize the market.
“There’s going to be something on the other side of all of this investment for the consumer,” said John Blackledge, an analyst at Cowen and Company LLC.
“People will buy more on Amazon when they see they can get it in five hours instead of in two days.”
Amazon has spent at least $2.2 billion acquiring land or properties slated for redevelopment in the past two years, according to CoStar, which says the estimate is conservative because some states, including Texas, don’t disclose purchase prices.
What does this mean for the retail experience of the future?
With increasing land purchases, does Amazon anticipate being the only option in key U.S. markets?
Amazon’s so-called “Fresh” grocery stores are another element in the company’s business model. These Orwellian facilities feature thousands of surveillance cameras on the ceiling that watch customers as they put things in their carts and automatically charge them when they walk out the door.
It seems as though Amazon wants to own America. And it is accomplishing this by buying as much land as possible, much like how billionaire eugenicist Bill Gates is buying up hundreds of thousands of acres of farmland all across the country.