The rent has come due for America’s small businesses and at a very inopportune time.
Landlords were lenient about rent payments during the first two years of the pandemic. Now, many are asking for back rent, and some are raising the current rent as well. Meanwhile, most of the government aid programs that helped small businesses get through the pandemic have ended while inflation has sharply pushed up the cost of supplies, shipping, and labor.
Thirty-three percent of all U.S. small businesses could not pay their May rent in full and on time, up from 28 percent in April, according to a survey from Alignable, a small business referral network. And 52 percent said rent has increased over the past six months.
“Many small businesses are still frankly recovering from whatever the last phase of COVID was,” said Chuck Casto, head of corporate communications at Alignable. “Plus, they’re dealing with a years’ worth of increasing inflation on top of that. It’s made it difficult for small businesses to really make a go of it.”
Data from the commercial real estate financing and advisory firm Marcus & Millichap shows rent rose 4.6 percent in the first quarter of 2022 compared with the year-ago quarter as the vacancy rate dropped to 6.5 percent, the lowest since before 2015. But Daniel Taub, national director of retail sales at Marcus & Millichap, said inflation will make it harder for landlords to impose rent increases as the consumer begins to feel squeezed.
“Consumers can only spend so much when the dollar goes not as far, and retailers can only pay so much to carry space and have enough inventory to pay employees,” he said. “It’s a tough retail market and something’s going to have to give.”
Charleen Ferguson owns the building that houses the tech business she owns with her husband, Just Call the I.T. Guy, in Wylie, Texas. She also has 13 tenants, so she sees the dilemma from both the small business and landlord’s points of view.
During the pandemic, Ferguson agreed with her tenants, which range from a massage therapist to a church, to put a moratorium on rent. Once things began to reopen, she worked with tenants on the back rent. They all caught up within three months – except the church, whose debts she forgave.
But she’s had to raise the rent by about 5 percent as of May to keep up with her own costs of maintaining the building. Prices have gone up for utilities and cleaning supplies, as well as property taxes. So far, she hasn’t lost any tenants.
“I did just enough to cover the increases, I didn’t do anymore,” she said. “We’re not making much money, but we’re keeping people in business.”
For some small businesses, a higher rent just isn’t an option. The solution: Go remote.
Alec Pow, CEO at ThePricer.org, a credit management consultancy with 8 employees in New York, said his landlord planned to hike the rent by 30 percent when they renewed the contract. Pow expected a smaller increase. The landlord said they had a prospective tenant who would pick up the lease for the full requested price.
So, Pow decided to lose the office and let his New York staffers work remotely for two months while they search for cheaper space. The business also has one office in San Francisco and two in Europe.
“We were in the process of increasing the wages of our employees to counter the rise of inflation,” he said. “Our annual budget didn’t have room for both of these expenses, so we had to pick one .”
