Add rent to rising costs for businesses
NEW YORK — 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.
Martin Garcia, owner of gift and décor store Gramercy Gift Gallery in San Antonio, Texas, survived the first part of the pandemic in part by paying his landlord whatever rent he could each month. Then in August 2021, after the federal moratorium on evictions ended, his landlord asked for the full amount of back rent that he owed.
“I needed $10,000 in 15 days,” Garcia said. He took whatever loans he could find — often at high interest rates — and barely met the deadline.
A strong holiday season helped him pay back his loans, but so far this year sales have slipped, and he used credit card financing to pay his June rent. Garcia thinks some of his customers are cutting back on nonessentials to afford to pay the higher prices for gasoline and other must-have items.
Thirty-three percent of all
Nam Y. Huh
U.S. small businesses could not pay their May rent in full and on time, up from 28% in April, according to a survey from Alignable, a small business referral network. And 52% 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 year’s 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% in the first quarter of 2022 compared with the year-ago quarter as the vacancy rate dropped to 6.5%, 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.”
For some small businesses, a higher rent just isn’t an option. The solution: Go remote.