The giant’s footprint reduction to cut costs sinks Commercial Real Estate.
By Wolf Richter for WOLF STREET.
Amazon, which booked net losses in Q1 and Q2 totaling nearly $6 billion and whose shares are down 38% from their high in July last year, is undertaking large-scale efforts to cut costs – including commercial real estate costs. It is closing or cancelling 44 warehouses across the US; it’s halting construction on six office towers, and won’t start construction on a seventh. And now it emerges that it plans to close four of its five call centers in the US and switch those customer service representatives to working from home.
Amazon currently operates five call centers in the US. Kennewick, WA; Lexington, KY; Phoenix, AZ; Huntington, WV; and Houston, TX. It plans to close four of them. Either the Houston or the Huntington facility will likely remain open, according to Bloomberg, citing a source.
Amazon confirmed to Bloomberg that the call center work will be shifted to work from home. Even before the pandemic, it already allowed some call center workers to work from home.
“We’re offering additional members of our customer service team the increased flexibility that comes with working virtually,” an Amazon spokesman told Bloomberg. “We’re working with employees to make sure their transition is seamless while continuing to prioritize best-in-class support for customers.”
For many call center workers, not having to commute is a big benefit, and this should make recruitment easier and reduce turnover, in an economy where hiring and employee turnover are tough challenges for employers. In addition, Amazon can recruit call center workers around the US – essentially anywhere with a good internet connection – and is no longer tied to particular cities.
By cutting out four of its five call centers, Amazon will save on the costs of running them, including administrative and real estate costs.
In July, it emerged that Amazon was halting construction on five office towers, and will not even start construction on a sixth tower, all of them in downtown Bellevue, Washington. Amazon also halted construction on its office tower in Nashville, Tennessee, where it already has a tower. And it slashed the amount of office space it had planned on leasing at Hudson Yards, in Manhattan, where it has been leasing space since 2019, and this would be for additional space.
The entire office sector of commercial real estate is already in trouble with sky-high vacancy rates and a very uncertain future as demand for office space has plunged amid working from home and the sudden recognition that the future these office towers were built for in huge number may not come.
Prices of office REITS have plunged below their March 2020 lows. Boston Properties [BXP] is down 50% from February 2020, most of which over the past five months. Vornado Realty Trust [VNO] plunged to the lowest in about 20 years and is down 66% from February 2020. Etc.
In terms of warehouses, in May, it emerged that Amazon would shed between 10 million square feet to 30 million square feet of warehouse space that it took on during the pandemic, but that it won’t need anymore. It is leasing these warehouses and will try to sublease them to some other companies.
This instantly pulled the rug out from under what was then the still red-hot industrial segment of commercial real estate. Amazon is the giant in the industrial space.
In late June, it emerged that Amazon has delayed or cancelled plans for 13 warehouses around the country. It more recently emerged that Amazon in fact has closed or cancelled 44 warehouse facilities and delayed the opening of 25 additional facilities.
Shares of Prologis [PLD], the giant among the warehouse REITS and a super-hot stock during the pandemic as Amazon was ramping up in the industrial sector, has plunged by 42% from its high on April 28, just days before Amazon’s warehouse footprint reduction became publicly known, which took the whole sector down.
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