How E-Commerce Returns Are Fueling Demand for Shallow Bay Flex Space

Every time someone orders three sizes of the same jacket and returns two, a small-bay industrial investor should smile. Because all those returns need to go somewhere -- and that somewhere increasingly looks like a 6,000 SF flex bay with grade-level doors and decent lighting.

Online shoppers return 16-20% of everything they buy, compared to 8-10% for in-store purchases. Apparel and footwear? Return rates approach 30-40%. E-commerce now exceeds 22% of all U.S. retail sales, and the tsunami of returned merchandise has created a tenant category that barely existed a decade ago.

That demand is landing squarely in shallow bay flex industrial. For investors and owners in Texas, this isn't a trend to monitor. It's a tenant pipeline to capture.

The Scale Is Absurd

U.S. consumers returned roughly $890 billion worth of merchandise in 2024. E-commerce returns accounted for about $350 billion. By 2025, total return volume is projected to exceed $900 billion, with e-commerce returns growing faster than forward sales.

Translate those dollars into square footage: every $1 billion in returns requires approximately 1.5-2 million SF of processing, inspection, repackaging, and redistribution space. E-commerce returns alone demand 500+ million SF nationally -- rivaling the entire warehouse footprint of many mid-size metros.

Why returns keep climbing

None of these drivers are reversing:

• Bracketing: Consumers intentionally order multiple sizes with plans to return the rest. An estimated 40% of online apparel purchases now involve bracketing. It's not abuse -- it's rational behavior when returns are free.
• Free return policies: Despite costing retailers $21-33 per return, free returns remain a competitive necessity. The few brands that have tried charging fees got roasted on social media.
• Try-before-you-buy programs: Amazon's Try Before You Buy, Stitch Fix, and similar services are structurally designed around 60%+ return rates.
• Social media impulse buying: TikTok and Instagram shopping drive high-volume impulse purchases with predictably high return rates.

Reverse Logistics: A Whole New Tenant Category

Forward logistics -- manufacturer to consumer -- drove industrial demand for two decades. Reverse logistics -- consumer back through the supply chain -- is now generating its own parallel demand wave.

What these tenants actually need

Return processing is nothing like forward fulfillment. The space requirements reflect that:

• Grade-level loading, not dock-high. Returns arrive via UPS, FedEx, and USPS, not full truckloads.
• Moderate ceiling heights (16-24 feet). Processing is workstation-based, not high-rack storage.
• Generous floor space for sorting and inspection. Every item gets opened, inspected, categorized, and routed individually. It's labor, not logistics.
• 20-30% office component. Customer service, QC documentation, and refurbishment coordination need real office space.
• Good lighting and climate control. Inspection work demands it. Bulk warehousing doesn't.
• Bay sizes of 3,000-15,000 SF. Most operations fit perfectly in multi-tenant shallow bay.

This maps almost exactly to shallow bay flex industrial: multi-tenant buildings with 16-24 foot ceilings, grade-level doors, moderate office ratios, and individual bays in the 2,000-15,000 SF range. For details on the format, see our guide to flex industrial space.

The tenant types filling these bays

The ecosystem has evolved fast:

Third-party return processors. Companies like Optoro, Returnly (now Affirm), and dozens of regional operators handle returns on behalf of retailers. They typically lease 5,000-20,000 SF per location across multiple markets.

Refurbishment and recommerce operators. Returned electronics, appliances, and goods get refurbished and resold. These tenants need workshop-style flex bays with adequate power and workbenches. Typical footprint: 3,000-10,000 SF.

Liquidation resellers. Not everything goes back on the shelf. Liquidation companies buy returned merchandise in bulk, sort and grade it, and resell through secondary channels. They need warehouse-heavy flex in the 5,000-15,000 SF range.

Brand-operated return centers. Mid-size DTC brands doing $10-50M in annual revenue increasingly process their own returns. A 3,000-8,000 SF bay near their fulfillment space keeps everything in-house.

Donation and recycling processors. The end of the line for unsellable returns. Lower rent tolerance, but consistent demand that puts a floor under occupancy in older product.

Why Texas Is Ground Zero

Geographic centrality

A return center in DFW or San Antonio can receive ground-shipped returns from 80% of the U.S. population within three days. Texas is the natural hub for regional and national processing operations.

Population scale

Over 30 million residents generating enormous local return volume. DFW, Houston, Austin, and San Antonio each produce billions in annual e-commerce spending -- and proportional return flows.

Labor economics

Return processing is labor-intensive work at moderate skill levels -- opening packages, inspecting items, data entry, sorting. Texas offers a large workforce at competitive wages, 15-25% below coastal markets.

The right building stock already exists

Texas has one of the largest inventories of shallow bay flex in the country, much of it built in the 1980s and 1990s in suburban industrial parks. This vintage product -- often held by individual or family investors at below-market rents -- is ideally suited for return processing tenants who need functional space at moderate rents, not Class A finishes.

What This Means for Small Bay Investors

A bigger, more diverse tenant pool

Return processing tenants are additive, not substitutive. They don't displace contractors, light manufacturers, or forward fulfillment operators -- they fill a different niche. This means a larger and more diverse pool of potential tenants, reducing vacancy risk and shortening lease-up timelines.

Strong lease economics

Return processing tenants tend to be:

• Creditworthy: Many are VC-backed, PE-backed, or contracted with major retailers
• Space-efficient: They maximize floor utilization, reducing wear and vacancy
• Growth-oriented: Successful operations expand, often within the same property
• Sticky: Processing infrastructure creates switching costs that drive renewals

In Texas markets, these tenants sign at $10-14 PSF gross -- at or above prevailing market for small bay, and often willing to pay premiums for buildings with adequate power and parking.

Value-add through targeted improvements

Older buildings can become significantly more attractive to return processors through modest capital:

• LED lighting ($2-4 PSF): Makes inspection work practical
• Enhanced electrical capacity: Additional circuits for workstations and equipment
• Climate control improvements: Return processing requires comfortable conditions for labor-intensive sorting
• Sealed or epoxy flooring: Preferred for clean processing environments

Total cost: $5-15 PSF. Supportable rent premium: $1-3 PSF. That's a strong return on invested capital.

This Trend Has Legs

Some investors wonder whether better technology -- AR try-on, improved sizing tools -- will cut return rates. The evidence says no.

The structural drivers are behavioral, not technological. Bracketing is rational when returns are free. Impulse purchasing is incentivized by every major social platform. Try-before-you-buy is expanding, not contracting.

Even if return rates somehow stabilized at current levels (optimistic), continued e-commerce growth as a share of total retail means absolute return volume keeps climbing. A steady 18% return rate applied to a growing base produces more returns every year -- and more demand for processing space.

And sustainability pressure will make it worse (from the retailer's perspective) and better (from yours). Regulations and consumer expectations increasingly push retailers toward refurbishment and resale rather than disposal. Processing for recommerce requires significantly more space per unit than throwing product in a dumpster.

Finding Properties That Fit

The ideal small bay property for return processing tenants:

• 3,000-15,000 SF bays with ability to combine for larger operators
• Grade-level loading with at least one roll-up door per bay
• 16-24 foot ceilings -- adequate for processing, not wasted on unnecessary clearance
• 20-30% office ratio for admin and QC
• Strong parking for a labor-intensive workforce (4-5 spaces per 1,000 SF)
• Proximity to parcel carrier hubs (UPS, FedEx, USPS distribution centers)
• Functional condition -- doesn't need to be new, but needs adequate lighting, power, and climate control

SpanVor helps investors identify properties matching this profile across Texas. With data on industrial properties statewide, AI scoring, and filtering by building characteristics, ownership type, and submarket, you can build a pipeline of flex properties positioned to capture this growing demand.

Search flex industrial properties across Texas, explore opportunities on our interactive map, or sign up free to get started. For broader context, read our analysis of why small bay industrial is outperforming traditional CRE and the small-bay market trends shaping 2026.