Rent has come due for American small business and at a very inopportune time.
Landlords were lenient with rent payments during the first two years of the pandemic. Now many are asking for rent arrears, and some are also increasing the current rent. Meanwhile, most government relief programs that have helped small businesses through the pandemic have ended as inflation has driven up the cost of supplies, shipping and labor. work.
Martin Garcia, owner of the Gramercy Gift Gallery gift and home decor store 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 eviction moratorium ended, her landlord demanded the full amount of back rent he owed.
“I needed $10,000 in 15 days,” Garcia said. He took out every loan he could find – often at high interest rates – and barely made it to the deadline.
A good holiday season has helped him pay off his loans, but so far this year sales have plummeted and he’s used credit card financing to pay his June rent. Garcia believes some of her customers are cutting back on non-essentials to afford the higher prices for gasoline and other essentials.
Thirty-three percent of all U.S. small businesses were unable to pay their May rent in full and on time, down from 28 percent in April, according to a survey by Alignable, a referral network for small businesses. And 52% said the rent had gone up in the past six months.
“Many small businesses are still recovering frankly from the last phase of COVID,” said Chuck Casto, corporate communications manager at Alignable. “Plus, they’re facing a year of rising inflation on top of that. It’s hard for small businesses to really pull through.”
Ris Lacoste owns a namesake restaurant, Ris, in Washington, DC, and keeps herself afloat thanks to the help she received from the Restaurant Relief Fund to pay her rent. But the money must be spent by March 2023.
“What I have to do to stay alive after this, every penny I can save has to go into reserve,” Lacoste said. To cut corners, she is renovating tables to cut linen costs, not printing color copies of menus, and working with 22 employees instead of the 50 she had previously.
Before the pandemic, the 7,000-square-foot restaurant was often full, but it’s not “back to full occupancy at all,” Ris said. At the same time, inflation worsens the cost of doing business.
“Payroll is up, labor is up, cost of goods is up, utilities are up,” Lacoste said. “I wear 20 hats instead of 10 and I work six days a week, 12 hours a day.”
But the rent is not something she can control, and that adds to the stress.
“You work for the owner, how long do you want to do this, how long will you survive?” ” she says. “It’s not sustainable.”
Data from commercial real estate finance and advisory firm Marcus & Millichap shows rents rose 4.6% in the first quarter of 2022 from the year-ago quarter as the vacancy rate fell to 6, 5%, the lowest since before 2015. But Daniel Taub, national retail sales manager at Marcus & Millichap, said inflation will make it harder for landlords to impose rent increases as the consumer begins to feel rushed.
“Consumers can only spend so much when the dollar doesn’t go that far, and retailers can’t pay so much to carry space and have enough inventory to pay employees,” he said. “It’s a tough retail market and something is going to have to give.”
Charleen Ferguson owns the building that houses the tech company she owns with her husband, Just Call the IT Guy, in Wylie, Texas. She also has 13 tenants, so she sees the dilemma from both a small business and landlord perspective.
During the pandemic, Ferguson has agreed with his tenants, who range from a massage therapist to a church, to impose a moratorium on rents. Once things started to reopen, she worked with tenants on the backlog of rent. They all caught up in three months – except the church, whose debts she forgiven.
But she had to raise the rent by around 5% from May to meet her own building maintenance costs. Prices rose for utilities and cleaning supplies, as well as property taxes. So far, it has not lost any tenants.
“I made just enough to cover the raises, I didn’t make more,” she said. “We don’t make a lot of money, but we keep people in business.”
Do business online
For some small businesses, higher rent just isn’t an option. The solution: go remote.
Alec Pow, CEO of ThePricer.org, an 8-employee credit management consulting firm in New York, said its landlord plans to raise rent by 30% when the contract is renewed. Pow expected a smaller increase. The landlord said he had a potential tenant who would accept the lease for the full asking price.
So Pow decided to lose the office and let its New York employees work remotely for two months while they looked for cheaper space. The company also has an office in San Francisco and two in Europe.
“We were in the process of increasing the salaries of our employees to counter rising inflation,” he said. “Our annual budget didn’t have room for these two expenses, so we had to choose one.”