Amazon to sell Bay Area office complex as sales growth cools

AMAZON.COM is selling a vacant Bay Area office complex purchased about 16 months ago, the company’s latest effort to unwind a pandemic-era expansion that left it with a surfeit of warehouses and employees.

Amazon in October 2021 paid US$123 million for the 12-hectare property in Milpitas, California, as part of a strategy to lock up real estate near big cities that could be used for new warehouses and facilitate future growth. Dermody Properties, a commercial real estate developer based in Reno, Nevada, is buying the property and will convert it into warehouse space, said George Condon, a partner with the firm.

The deal is expected to close by the end of April, and Dermody is looking for warehouse tenants, Condon said.

Amazon is expected to take a loss on the sale of the Metro Corporate Center, according to one person familiar with the terms of the deal, who spoke on condition of anonymity. Another person said the final price is still being negotiated. Condon declined to disclose the sale price.

The Bay Area’s office market has been hit hard over the past two years, as companies pivoted to remote work and gave up real estate to cut costs. Nearly one-fifth of the office market is vacant, according to a fourth-quarter report from CBRE Group. Amazon was likely planning to replace the office complex with delivery facilities, but such development has been stalled across the region owing to new municipal regulations and growing building costs.

“We’re always evaluating our network to make sure it fits our business needs,” Amazon spokesperson Steve Kelly said in a statement. “As part of this effort, we’ve made the decision to explore selling the Metro Corporate Center site. We’re happy to remain part of the local community and will continue to deliver for customers from our two delivery stations in Milpitas.”

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Amazon’s decision to sell the property underscores the risks of a new real estate strategy the company has embraced in recent years. Bloomberg News reported last year that the company was quietly buying property across the US. The real estate included existing buildings and bare land that the company planned to use for a new generation of fulfilment centres that it would develop itself. Previously Amazon had relied on developers to find the property and build the facilities.

When online sales growth began slowing last year, Amazon started pulling back on its property strategy, pausing the development of a 56-hectare parcel outside Austin, Texas. Now, with the Bay Area sale, the Seattle-based company has begun offloading properties, suggesting executives expect sluggish growth to endure. 

Amazon continues to open new facilities — including warehouses in Omaha, Nebraska, and Sioux Falls, South Dakota, earlier this month — but at a more measured pace than during the pandemic when it needed all the space it could find.

Amazon last year began its biggest-ever round of job cuts that will ultimately affect 18,000 workers around the globe. The world’s largest e-commerce company, which is scheduled to report earnings on Feb 2, warned investors that fourth-quarter sales growth would be the slowest in its history. BLOOMBERG