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Is There a Looming Rent Crisis for Small Businesses?

Written by Ashley Sutphin Posted On Tuesday, 06 September 2022 00:00
Is There a Looming Rent Crisis for Small Businesses?

Recently, Federal Reserve chair Jerome Powell said we should expect “pain” to come in the economy because of the continuing battle with inflation being waged by the central bank. Right now, small businesses are experiencing the brunt of economic pain on all sides.

Inflation has been named the top concern by small business leaders for a while now, as they’ve grappled with high prices in raw materials, energy, transportation, and labor, all of which impact their margins. Along with that are higher rents, with landlords feeling as if they can be more aggressive as we’re seemingly moving away from the peak of the Covid crisis. That’s compounding with the inflation Main Street is feeling.

There are signs that inflation is slowing, but that’s largely the result of the Fed trying to slow demand. Small business owners, as such, are expecting a decline in sales.

All that means that small businesses are increasingly unable to keep up with their rent. According to a new survey of small business owners conducted by Alignable, there was a significant jump in August in the percentage of small businesses that couldn’t pay full rent for August.

Apartment rental prices, which have spiked drastically, are one of the key indicators showing inflation may have peaked. However, the Alignable data shows showing small businesses are seeing a worsening rent inflation crisis. Forty percent of small business owners reported they couldn’t pay their full rent, up 6% month-over-month. It set a record for 2022.

The percentage of small business owners saying they couldn’t make their rent hasn’t been this high since March 2021. Analysts say that would be expected during the height of the pandemic when things were shut down, or people were choosing not to go out or go to restaurants. Now, however, it could be an indicator of something more problematic.

Forty-five percent of surveyed small business owners said they’re paying at least 50% more in rent than they did before Covid. Twenty-four percent said their landlords had doubled their rent, and 12% say they’re paying triple what they were.

Small businesses, based on this data, are struggling to get back to the revenue levels they had before Covid as the Fed is trying to take steps to slow demand.

The Alignable data seems to reflect similar trends to a recent CNBC and SurveyMonkey Small Business survey, which showed small business confidence was at an all-time low.

Rent data is critical because it indicates more about the complete picture of business finances.

Alignable asked small businesses in their research if pressure from inflation, including their increased rent, could potentially impact their ability to stay open over the next six months. This data point remains pervasively high, at around 47-48%. Of that percentage, 20% say they’re highly concerned.

While there is some discouraging news, it’s not all bleak. By some recent measures, small businesses in the service sector seem to be benefiting from shifts in consumer behavior, which are moving from goods to more purchases of services. A lot of storefronts, however, no longer exist.

Real estate experts encourage small businesses to take steps if they feel they can’t make their rent.

One is to negotiate with the landlord, although that’s tougher the further out we are from Covid’s peak. Many landlords feel like they did all they could for over two years, but now they need to start making money. Otherwise, they could risk losing their buildings.

It can’t hurt to ask for small businesses, though, because many landlords still prefer having a tenant who’s making a good-faith effort pay rent, rather than having an empty storefront during a slowdown of the economy. Some landlords are okay with getting even a portion of the rent if it means the space is filled.

Finally, for other businesses, it could be a good time to think about going fully remote if it’s something that works for their model. Then, businesses can cut out the overhead from real estate.

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