Amazon now is set to close and sell more than 10 million square feet of warehouse space after admitting it has too much.

The online giant says now the pandemic online shopping spike is over, it no longer needs so much space.

Bloomberg reports Jeff Bezos’s company will sublet some of the warehouse space and leave even more empty by terminating its agreement with landlords.

Amazon Warehouses in New York, New Jersey, Atlanta and Southern California are all set to go, according to anonymous people close to the situation.

Two of the insiders suggested the surplus of space may be significantly greater than 10 million square feet, with one claiming it could be triple that.

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Another source familiar with the discussions claimed that a definitive estimate on the amount of space to be vacated has yet to be achieved and that the figure is still in flux.

Two people said Amazon could try to negotiate lease terminations with current landlords, including Prologis Inc., an industrial real estate firm that has Amazon as its largest tenant.

The 10 million square feet Amazon is looking to sublet is roughly equivalent to about 12 of its largest fulfillment facilities, or about 5 percent of the square footage added during the pandemic, indicating that the business is being cautious not to cut too drastically should demand soon rebound.

Spokeswoman Alisa Carroll said: “Subleasing is a very common real estate practice. It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs. Subleasing is something many established corporations do to help manage their real estate portfolio.”

Last month, Amazon alarmed its investors by reporting slower growth and a bleak profit outlook, which it blamed on overbuilding during the pandemic when homebound shoppers went online in droves.

At the end of 2021, Amazon leased 370 million square feet of industrial space in the US, twice as much as it had two years earlier.

In the April earnings report, the company said it expected the excess space to contribute to $10 billion in extra costs in the first half of 2022.

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The firm refused to say how much excess capacity it had, where it was situated, or what it planned to do with it. One method for Amazon to cut costs on space it no longer needs is to lease extra space.

Amazon tasked the real estate firm KBC Advisors to evaluate the warehouse network and determine where to sublet and where to terminate leases, two of the people said.

Both choices are not free. When Amazon sublets warehouse space, it must remove all of its equipment so that the new occupier can customize it to their specific needs. When a lease is terminated, the tenant is usually required to pay a percentage of the rent that would have been owed over the whole length of the agreement.

Source: Bloomberg

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