The rent is due for small American businesses and at a very inopportune time.
Landlords have been lenient on rent payments during the first two years of the pandemic. Now, many are asking for the back rent, and some are increasing their current rent as well. Meanwhile, most of the government aid programs that helped small businesses overcome the pandemic have ended as inflation has dramatically increased the costs of supplies, shipping and labor.
Martin Garcia, owner of the gift and furniture shop Gramercy Gift Gallery in San Antonio, Texas, survived the first part of the pandemic in part by paying his landlord the rent he could each month. Then, in August 2021, after the federal eviction moratorium ended, his landlord demanded the full amount of the outstanding rent that he owed.
“I needed $ 10,000 in 15 days,” Garcia said. She took out all the loans he could find, often at high interest rates, and barely met the deadline.
A strong holiday season has helped him pay off his loans, but sales have dropped so far this year and he’s used credit card financing to pay off his June rent. Garcia thinks some of his customers are cutting back on non-essential items to afford the higher prices for gasoline and other essential items.
33% of all US small businesses were unable to pay their May rent in full and on time, up from 28% in April, according to a survey by Alignable, a go-to network for small businesses. And 52% said rent has increased in the past six months.
“Many small businesses are still frankly recovering from whatever the latest phase of COVID was,” said Chuck Casto, head of corporate communications at Alignable. “Plus, they’re dealing with a year of rising inflation on top of that. It’s made it hard for small businesses to actually try.”
Ris Lacoste owns a restaurant of the same name, Ris, in Washington, DC, and stays afloat using the aid it received from the Restaurant Relief Fund to pay the rent. But the money must be spent by March 2023.
“What I have to do to stay alive after that, every single penny I can save has to go into reserve,” Lacoste said. To cut corners, she is refining tables to reduce linen costs, not printing color copies of menus and working with 22 employees instead of the 50 she once had.
Before the pandemic, the 7,000-square-foot restaurant was often full, but it hasn’t “returned to full occupancy,” Ris said. At the same time, inflation is exacerbating the cost of doing business.
“Wages have gone up, manpower has gone up, the cost of goods has gone up, public services have gone up,” Lacoste said. “I wear 20 hats instead of 10 and work six days a week, 12 hours a day.”
But the rent isn’t something he can control, and that adds to the stress.
“Do you work for the landlord, how long do you want to do it, how long will you survive?” she said. “It is not sustainable”.
Data from commercial real estate consulting and financing firm Marcus & Millichap shows rent increased by 4.6% in the first quarter of 2022 compared to last year’s 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 homeowners to impose rent increases as the consumer begins to feel overwhelmed.
“Consumers can only spend so much when the dollar doesn’t go that far, and retailers can only pay so much to carry space and have enough inventory to pay employees,” he said. “It is a difficult retail market and something will have to give.”
Charleen Ferguson owns the building that houses the technology business 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 the small business and landlord perspective.
During the pandemic, Ferguson agreed with his tenants, ranging from a massage therapist to a church, to put a moratorium on rent. Once things started to reopen, he worked with the tenants of the back rent. They recovered everyone within three months, except the church, whose debts he forgave.
But in May it had to raise its rent by about 5% to keep up with its building maintenance costs. Prices have increased for utilities and cleaning products, as well as property taxes. So far it hasn’t lost any tenants.
“I’ve done just enough to cover the increases, I haven’t had any more,” he said. “We’re not making a lot of money, but we’re keeping people in business.”
Doing business online
For some small businesses, a higher rent is not an option. The solution: go remote.
Alec Pow, CEO of ThePricer.org, a credit management consultancy with 8 employees in New York, said his landlord planned to increase the rent by 30% upon renewal of the contract. Pow expected a smaller increase. The landlord said they had a potential tenant who would collect the rent for the full asking price.
So, Pow decided to lose his office and let his New York employees work remotely for two months while looking for a cheaper space. The company also has an office in San Francisco and two in Europe.
“We were raising our employees’ wages to counteract rising inflation,” he said. “Our annual budget didn’t have room for both of these expenses, so we had to pick one.”