NEW YORK (AP) – The rent has come to pay for the small businesses of the United States and at a very inconvenient time.
Landlords were lenient with rent payments during the first two years of the pandemic. Now many are asking for rent back, and some are also raising the current rent. Meanwhile, most of the government assistance programs that helped small businesses get through the pandemic have been completed, while inflation has sharply pushed up the costs of supplies, shipping and labor.
Martin Garcia, owner of the gift and decor store 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. So in August 2021, after the federal moratorium on evictions ended, his landlord asked for the full amount of rent that he owed.
“I needed $ 10,000 in 15 days,” Garcia said. He took out the loans he could find – often at high interest rates – and barely reached the deadline.
A strong holiday season helped him repay his loans, but so far this year, sales have fallen and he used credit card financing to pay his rent in June. Garcia believes some of his customers are cutting back on unnecessary items to be able to afford to pay the higher prices for gasoline and other must-have items.
33 percent of all U.S. small businesses could not pay their May rent in full and on time, up from 28% in April, according to a survey by Alignable, a small business referral network. And 52% said rents have risen over the past six months.
“Many small businesses are still quite honestly 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 rising inflation on top of that. It’s made it hard for small businesses to really get a chance.”
Ris Lacoste owns a restaurant of the same name, Ris, in Washington, DC, and stays afloat using 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 that, every penny I can save has to go into reserve,” Lacoste said. To cut the corners, she paints tables to cut down on linen costs, does not print color copies of menus, and works with 22 employees instead of the 50 she once had.
Before the pandemic, the 7,000-square-foot restaurant was often full, but it is not at all “back to full occupancy,” Ris said. At the same time, inflation is exacerbating the cost of doing business.
“Wages are rising, labor is rising, commodity costs are rising, utilities are rising,” Lacoste said. “I wear 20 hats instead of 10, and I work six days a week, 12 hours a day.”
But rent is not something she can control and it increases stress.
“You work for the landlord, how long will you do it, how long will you survive?” she said. “It’s not sustainable.”
Data from finance and consulting firm Marcus & Millichap show that rents rose 4.6% in the first quarter of 2022 compared to the previous year, when the vacancy rate fell to 6.5%, the lowest since before 2015. But Daniel Taub, national director for retail sales at Marcus & Millichap, said inflation will make it harder for landlords to impose rent increases as the consumer begins to feel pressured.
“Consumers can only spend so much when the dollar is not going that 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 provide.”
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 the landlord’s point of view.
During the pandemic, Ferguson agreed with his tenants, who range from a massage therapist to a church, to put a moratorium on rents. When things started to reopen, she worked with tenants on the backyard. They all caught up within three months – except the church, whose debt she forgave.
But she has had to raise rents by about 5% from May to keep up with her own cost of maintaining the building. Prices have risen for utilities and cleaning supplies as well as property taxes. So far, she has not lost any tenants.
“I did just enough to cover the hikes, I did no more,” she said. “We do not make a lot of money, but we keep people going.”
For some small businesses, a higher rent is just not an option. The solution: Go remote control.
Alec Pow, CEO of ThePricer.org, a credit management consulting firm with 8 employees in New York, said his landlord was planning to raise the rent by 30% when they renewed the contract. Pow expected a slight increase. The landlord said they had a potential tenant who would pick up the lease for the full desired price.
So Pow decided to lose the office and let his New York employees work remotely for two months while searching for a cheaper space. The company also has an office in San Francisco and two in Europe.
“We were in the process of increasing the wages of our employees to counter the rise in inflation,” he said. “Our annual budget did not have room for both of these expenses, so we had to choose one.”