During the fourth quarter earnings call last week, Amazon’s CFO Brian Olsavsky announced that Amazon would continue to spend about 40 percent of its capital on internet networks and systems, 25 percent on transportation assets, and 5 percent on office and retail construction. He also announced that they would be reducing the 30 percent of their capital investment that had been previously budgeted to expanding fulfillment capacity.
In 2021, Amazon spent an estimated $25.4 billion on leased land and equipment and $5.8 billion on fulfillment center build-to-suit projects. Though Amazon will continue to develop new fulfillment centers at a brisk pace to meet its same-day delivery commitment to Prime customers, industrial property purchases and leasing activity are expected to be curtailed. However, this change of strategy is hardly indicative of any economic woes.
Fueled by pandemic e-commerce spending over the past two years, Amazon has driven the emergence of industrial warehouses as an institutional investment asset class by leasing millions of square feet of warehouse space and buying industrial buildings in cash for use as distribution centers. And Amazon’s pandemic leasing binge has paid off. In the U.S. alone, Amazon’s Prime Membership has increased by a whopping 49 percent since 2017, and there are now 148.6 million Americans who are Amazon Prime Members. Just to give you an idea of how Amazon has dominated the U.S. market, 148.6 million amounts to 71 percent of all adults in the U.S., according to Census data. As if their staggering market share wasn’t enough, Amazon just announced a $20 price hike for their Amazon Prime membership, effectively boosting their yearly revenue by $3.5 billion of pure profit.
Amazon leads overall warehouse capacity in the U.S., according to Montreal-based logistics expert MWPVL, with approximately 350 million square feet of operational space and another 125 million square feet in the pipeline, Walmart is second with 147 million square feet. Amazon is the largest corporate owner of industrial space in the United States, with 78 sites totaling 84 million square feet, a number that is sure to rise, albeit at a slower pace.