--- commands/core/site_install.drush.inc	(revision 1a9bd7094703b26d9e05263b9c064cdf3c13eebb)
+++ commands/core/site_install.drush.inc	(revision )
@@ -26,6 +26,13 @@
   $default_sites_subdir = drush_get_context('DRUSH_DRUPAL_SITE', 'default');
   $sites_subdir = drush_get_option('sites-subdir', $default_sites_subdir);
 
+  // If the %site path alias is specified in the drush alias being used, then
+  // override $sites_subdir with its value.
+  $site_alias_record = drush_sitealias_get_record(drush_get_context('DRUSH_TARGET_SITE_ALIAS'));
+  if (isset($site_alias_record['path-aliases']) && !empty($site_alias_record['path-aliases']['%site'])) {
+    $sites_subdir = basename($site_alias_record['path-aliases']['%site']);
+  }
+
   $conf_path = "sites/$sites_subdir";
   $files = "$conf_path/files";
   $settingsfile = "$conf_path/settings.php";