Add rent to the rising costs that confuse small businesses
NEW YORK (AP) – The rent has come to be paid for US small businesses and at a very unfavorable time.
Homeowners were lenient with rent payments during the first two years of the pandemic. Now many are asking for rent back, and some are also increasing the current rent. Meanwhile, most of the government assistance programs that helped small businesses get through the pandemic have ended while inflation has pushed up the costs of supplies, shipping and labor sharply.
Martin Garcia, owner of the Gramercy Gift Gallery gift and decor store in San Antonio, Texas, survived the first part of the pandemic in part by paying the landlord the rent he could each month. So in August 2021[ads1], after the federal moratorium on evictions ended, his landlord asked for the full amount of rent 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 kept 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 rent in June. Garcia believes some of his customers are cutting back on unnecessary goods to be able to afford to pay the higher prices for gasoline and other things one must have.
33 percent of all U.S. small businesses could not pay the mail rent in full and on time, up from 28 percent 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 honestly recovering from what the last phase of COVID was,” said Chuck Casto, head of business communications at Alignable. “Plus, they are dealing with several years of rising inflation on top of that. It has made it difficult for small businesses to really do that. ”
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 the rent. But the money must be used 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 corners, she polishes tables to cut down on link 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 “back to full occupancy at all,” Ris said. At the same time, inflation increases the cost of doing business.
“Wages are rising, labor is rising, commodity costs are rising, tools are rising,” Lacoste said. “I wear 20 hats instead of 10, and 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 do you want to do it, how long do you want to survive?” she said. “It’s not sustainable.”
Data from the financing and advisory firm Marcus & Millichap for commercial real estate show that rents rose 4.6% in the first quarter of 2022 compared to the quarter last year, when the unemployment rate fell to 6.5%, the lowest since before 2015. But Daniel Taub, national director for retail sales at Marcus & Millichap, said that inflation will make it harder for landlords to impose rent increases when the consumer begins to feel pressured.
“Consumers can only spend so much when the dollar does not go 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 will have to give.”
Charleen Ferguson owns the building that houses the technology 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 the small business and the landlord’s point of view.
During the pandemic, Ferguson agreed with her tenants, who range from a massage therapist to a church, to rent a moratorium. When things started to open up again, she worked with tenants on the back lease. They all recovered within three months – except for the church, whose debts she forgave.
But she has had to raise the rent by around 5% from May onwards to keep up with her own costs for the maintenance of the building. Prices have risen for tools and cleaning products, as well as property taxes. So far she has not lost any tenants.
“I did just enough to cover the increases, I did not do more,” she said. “We do not make a lot of money, but we keep people in business.”
For some small businesses, higher rents are just not an option. The solution: Go remote.
Alec Pow, CEO of ThePricer.org, a credit management consulting firm with 8 employees in New York, said his landlord planned to increase 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 full price.
So Pow decided to lose the office and let New York employees work remotely for two months while looking for a cheaper place. The company also has one office in San Francisco and two in Europe.
“We were raising the salaries of our employees to offset the rise in inflation,” he said. “Our annual budget did not have room for both of these expenses, so we had to choose one.”
