THE AMAZON "EFFECT" ON...EVERYTHING
Updated: Mar 5, 2021
Written by: Loren DeFilippo
Loren DeFilippo is the Director of Research for Cincinnati and Cleveland, providing analysis and insight on commercial property trends. Drawing on 30+ years of experience, Loren focuses on turning data into actionable intelligence for our clients and brokerage teams. Check out his post on Colliers Knowledge Leader here.
Amazon, according to Merriam-Webster, is defined as “a member of a race of female warriors of Greek mythology” and “a tall strong often masculine woman”. The word has come to be associated with large things, such as the Amazon River, which, by volume, is the largest river in the world, although that is not the reason for it being named so. The Amazon River is, however, the source for the company Amazon’s, name, after some early suggestions were scrapped. Type relentless.com into your browser and see what home page appears.
Amazon dominates the e-commerce sector through sales of its own products, in addition to commissions and fees from its marketplace sellers. The company also generates revenue from its Amazon Web Services (AWS) and Amazon Prime divisions. From its start in 1994, as an online bookseller, founder Jeff Bezos had a vision for the company. He wanted Amazon to be “an everything store.” Since then, Amazon has experienced explosive growth to become one of the world’s largest and most valuable companies with a market capitalization of $1.6 Trillion and nearly 1.3 million employees worldwide.
As a share of total online retail sales, Amazon’s take has steadily increased from 20.3% in 2017 to 24% during the first nine months of 2020. The online giant more than kept pace with the surge in online shopping during 2020 that saw e-commerce penetration leap from 15.8% to 21.3% of the total $4.04 trillion U.S. retail sales volume – itself a 6.9% increase over 2019.
To keep pace with this frenzied rate of growth, Amazon has become the largest consumer of commercial real estate in the U.S. During 2020, Amazon signed over 170 transactions to occupy 87.9 million square feet of industrial space. For perspective, in second place was Walmart with 8 million square feet, followed by Home Depot at 6.2 million square feet.
This brings Amazon’s warehouse footprint in the U.S. to 270.4 million square feet with another 262 facilities in the planning stages totaling 93.6 million square feet according to MWPVL data. This doesn’t include the millions of square feet of office space occupied in their Seattle headquarters, the planned HQ2 project outside Washington DC and numerous other cities across the country.
Industrial construction in the U.S. hit record levels in terms of both new supply and projects under construction during 2020. Amazon’s voracious appetite for warehouse space is certainly driving a large share of those completions, along with the record 340 million square feet currently under construction.
The out-sized demand for space is beginning to have some downstream effects beyond the commercial real estate sector. This demand is exerting pressure on construction costs. One national steel producer has reported that orders for construction projects related to Amazon in 2021 comprises effectively 33% of their national capacity and has increased lead times to a 20-year high.
National industrial contractor, ARCO Design Build Industrial, has issued guidance to their customers to expect additional cost increases for joist, girder and deck material. It is estimated that these increases alone will equate to an additional $1.30 per square foot in overall construction costs and it is likely that additional price increases will be coming. Other raw materials, construction products and labor costs are also being impacted by the elevated demand for industrial space by numerous e-commerce and logistics occupiers, of which Amazon comprises a large share.
The COVID-19 pandemic drove many consumers to the internet for their shopping needs, especially early in the year. Digital Commerce 360 estimates that ecommerce activity grew by 44% in 2020. While many companies such as Walmart, Target and Kroger saw online sales surge, Amazon came out on top, continuing to provide the American consumer with a convenient and effective way to shop. It can be expected that habits established during the pandemic are here to stay, so the “everything store” will likely continue to have an “effect” on…everything.