Amazon’s Office Downsizing Plan Threatens Already Struggling Commercial Real Estate Markets

An internal Amazon memo has unveiled a comprehensive plan to save $1.3 billion by drastically reducing the company’s office vacancies over the next three to five years.  

Business Insider, which first reported the memo, cites an unnamed source revealing that the e-commerce giant currently grapples with a 33.8% office vacancy rate — a result of slower growth and recent layoffs.  

By strategically allowing leases to expire, terminating some agreements early, and ceasing the use of certain office floors, the unnamed source suggests that Amazon is planning to bring its vacancy rate down to 25% in 2024 and ultimately to 10% in the coming years. 

An Amazon spokesperson, Brad Glasser, sent a statement to Commercial Observer stating that the company is constantly reevaluating its real estate portfolio based on the firm’s needs and trends in how employees use office space. This is reportedly based on a case-by-case basis. However, “to suggest that this is about anything else — such as our expectations for working in the office — is at best a misunderstanding and at worst intentionally misleading,” Commercial Observer reports.   

The leaked initiative appears to be part of a broader cost-cutting strategy at Amazon that includes halting projects, curbing expansion plans, and executing the largest layoffs in the company’s history.  

The impact of Amazon’s possible office downsizing could further strain already struggling commercial real estate markets across the U.S. Many cities have been grappling with the effects of increased remote work, high interest, and overbuilding. For example, in Pittsburgh, nearly 50% of the office spaces downtown could be sitting empty by 2028 unless some urgent intervention is taken. In Boston, the city faces a projected tax revenue shortfall of more than $1 billion over the next five years due to underutilized office spaces.  

These are not unique economic situations to U.S., either. A report published by McKinsey Global Institute suggests that office-space values could diminish across major international cities — including London, Paris, Munich, Tokyo, Beijing, and Shanghai.  

To optimize office utilization, Business Insider reports that Amazon is focusing on centralizing its workforce in designated “hubs.” By requiring employees to relocate to these central locations, the company hopes to improve collaboration and minimize operational expenses in non-hub sites. This approach, reportedly known as “hibernation,” involves suspending the use of entire floors or buildings to reduce costs related to HVAC and lighting.