55% Of SMBs Face Rent Spikes, 37% Of Renters Can't Pay In July, But Majority Of Landlords (52%) Are Recovering & "Thriving"

DATA INSIGHTS | RENT SPIKES & DELINQUENCY | LANDLORDS RECOVER: Boston, MA, July 28, 2023:  Alignable's July Small Business Rent Report shows 55% of SMB owners are facing rent spikes, extending June's 2023 record for a second consecutive month. And of those 55%, 15% are contending with rent that's at least 20% higher than it was at the beginning of 2023.

Given the number of small business renters affected by spikes, as well as the cumulative effects of inflation, national rent delinquency remains high in both the U.S. and Canada with 37% of small businesses in each country unable to cover July rent in full. 

But there is some good news. The majority of independent landlords (52%), most of whom are small business owners themselves, are now "thriving" again, surging each quarter this year toward what appears to be a true rebound. 

This figure is up four percentage points from April, when it was 48%. Even more impressive, it's up eight percentage points since January, which showed 44% of landlords charging what they need to succeed, prosper, and recover. 

This positive and encouraging progression, represented in the chart above, followed years of several local, independent landlords delaying rent collection, giving discounts, and otherwise trying to accommodate the needs of their cash-poor tenants during COVID, and the resulting inflationary period that emerged.

These figures and others in this report are based on a new Alignable rent poll of 4,601 randomly selected small business owners conducted from 7/2/23 to 7/27/23. This report also incorporates another 80,000+ responses from historical Alignable surveys over the past 18 months. 

While it's promising to see a group of such influential small businesses finally find a way to gradually recover in 2023, Alignable's poll of the landlords also reveals even more troubling news for renters. 

Landlords To Tenants: Sorry, More Rent Spikes Are Coming!

Some 13% of those polled said that they have yet to raise the rent since COVID started.  

But to combat ongoing inflation now and stay afloat, they will need to charge their tenants higher rent sometime this year. 

This means that the 55% of small business owners who say their rent is steeper now than it was six months previously will likely grow as 2023 proceeds. Here are more detailed statistics from the landlords surveyed so far in 2023:

On average, 18% each quarter this year told us they had to raise the rent to fight back against the burdens of inflation. 

This average is eight percentage points higher than the average for landlords who needed to make a big rent price hike in 2022, or risk shutting down their business -- either losing their building or selling it to another landlord. 

That partially explains why rents started going up in 2022 and now, in 2023, have picked up the pace as more landlords just can't continue to charge the same rent as they did prior to COVID. Otherwise, their margins will crumble.

It's also important to note that, in January, six percent of landlords either sold their businesses or were on the brink of giving up. That jumped to 11% in April, and now has landed in the middle in July, with 9% either selling their buildings, retiring, or being forced to shut down their commercial real estate business. 

Many Are Happy, But Nearly One Of 10 Are "On The Brink"

Having nine percent of landlords on the brink in July is a significant percentage, showing that not everyone is thriving. 

These small business owners have either given up already or are close to calling it a day. It also portends more rent hikes, perhaps, either from current landlords desperately struggling to hang on -- or by the new landlords who buy their buildings.  

In fact, three percent have declared being a landlord over the past few years was too stressful and they had to sell their business and/or retire for the sake of their mental health.

Watching this chart closely in future quarters could tell us a lot about one very telling aspect of the small business economy -- commercial real estate  -- and its various shifts. 

States/Provinces Affected Most By July's Rent Spikes

Given that rent spikes are both helping the landlords to reach a new level of recovery and continuing to hurt renters who are struggling with cumulative inflation and other issues, we wanted to take a quick look at where July's rent spikes were particularly high vs. other areas where price hikes have occurred, but haven't hurt as many small business renters. 

Here's a quick look at some of the rent hike hot spots in the U.S., along with a few that are relatively low this month. 

Texas is in the lead with a discouraging 73% of SMB owners polled there telling us the cost of their rent is higher than it was six months ago. 

Others above or at the very high national average of 55% are small business owners in the following states:

• CO -- 67%
• GA -- 65%
• WA -- 63%
• MI -- 60%
• CA -- 60%
• NY -- 57%, and
• FL -- 55%.

Next up, you have other states with a significant percentage of small business owners confronted by increased rent costs, but they're lower than the national average:

• VA -- 53%
• MD -- 44%
• NC -- 44%
• NJ -- 42%
• OH -- 40%
• MA -- 36%
• PA -- 35%
• CT -- 28%, and
• IL -- 22%.

What Are Rent Hikes Like In Canada?

First off, an even higher percentage of Canada's small business owners (58%) are being charged more for rent now than they were at the beginning of the year. 

Then the provinces with the highest number of survey respondents represented quite a range of those suffering from rent spikes:

British Columbia, similar to Texas, saw that nearly three-quarters of small business owners polled are confronted by rent spikes compared to what they paid just six months ago. 

Spikes are still high for the majority of small business owners in Ontario (57%) and Alberta (55%), but fewer of the entrepreneurs there are grappling with higher rent costs. 

No matter how you cut it, though, in Canada and the U.S., rents continue to climb in most areas, making it more and more difficult to recover for many independent businesses across different sectors and geographies. 

Recovery & Rent Delinquency Rates + Revenue Challenges

While a high percentage of small business owners are dealing with higher rent costs -- and that phenomenon continues to keep rent delinquency rates uncomfortably high -- there are other elements exacerbating the problems. 

Of course, rising costs for everything else (cumulative inflation), is a major issue, still -- and has been for about two years now. But the amount of money small business owners are earning is also a daunting problem -- and it is not getting any easier for most of them this month. 

Some 81% of those polled still have businesses that were started prior to COVID, while you have 19% with a company that was started in the past two or three years. 

For the 81%, a challenging revenue number appeared in our findings in July -- 40% of this group made only half (or less) this month compared to their time before COVID. 

The news was also disappointing for the newer businesses, but a bit less. For them, 38% made half or less of what they earned this time last year. So, they, too, are struggling to bring in revenue.

Rent spikes, struggles to ramp up revenue, ongoing inflationary issues, and more create the perfect economic landscape for high rent delinquency. So let's dive into that before we wrap up this month's report.

Nearly 40% Can't Pay The Rent (For 5 Months So Far)

Of course, all of this adds up to impact one's ability to pay monthly rent, which is why, for the FIFTH MONTH in a row, nearly 40% of the SMB owners polled could not cover July rent in full and on time.

The official figure in July was 37% -- two percentage points better than the 2023 record, 39%, in June. 

While there's some improvement there, first we need to see a month break the cycle of delinquency that's between 37% and 39% -- which has yet to happen since March. 

So, a slight improvement (37% vs. 39%) is little consolation when you're looking at such a large percentage of business owners who don't have the funds to meet a basic financial need: covering your rent. 

That, plus sagging YOY revenues, gives us a shaky picture of the overall small business economy in both the U.S. and Canada. 

How Are Different Sectors Faring? 

Similar to the news on the landlords' overall recovery, there are some silver linings here, amid a few other alarming shifts. 

Let's look at two charts that summarize the findings. We'll start with the positive developments.

The most exciting development here is the very low rate of delinquency seen among manufacturers this month (you read that right -- 12%). In fact, that breaks a record for the lowest rate in over a year in this sector, down a monumental 34 percentage points from the year-long high of 46% in June.  

Did we just catch manufacturers in a particularly profitable month? We can't say one way or the other right now, but let's see if that rate remains low for the rest of the summer into the fall.  For now, it is a very positive turn of events.

Restaurants, retail, and transportation all saw decreasing rent delinquency rates, with the nine percentage point drop for restaurants being the most dramatic. Now, only 36% of independent restaurant owners couldn't pay rent, a nice, stabilizing trend from 45% last month. 

Retail Is On A Roll; Transportation, Too!

Similarly, retailers had their best month for rent issues in 2023 with a delinquency rate of just 31%. It hasn't been that good since September.

Also at a rate of 31%, SMB owners in transportation have something to celebrate in this report. 

Just as the retailers did, those running car services and trucking companies broke a record for the lowest delinquency rate this year in July.

In fact, 31% represents the lowest rate in this category for more than a year. 

Many attribute this to lower gas prices over the past few months. Let's hope they can make this a streak.

Now For The Disappointing Swings

Musicians and artists had a particularly challenging month as 49% of them couldn't pay their rent. We're hoping it's just a blip, but we're keeping our eyes on them next month and in September, too.

A category that usually doesn't worry us -- science and technology -- saw a five percentage point jump from 35% to 40% in July, sounding the alarm that we need to give this sector more attention. With the growing popularity of AI tools like ChatGPT, there could be some instability here.  

Some practitioners here -- software engineers and other technology experts -- have expressed concerns that a few of their functions could be replicated by ChatGPT and/or other more sophisticated programs.

We are now polling more frequently about ChatGPT (see this week's report here). And we will be sure to dig deeper here in future polls, so that we can learn more details about what could be happening in the science and technology small business sphere. 

Finally, gyms saw a rent delinquency rate jump of seven percentage points from 31% in June to 38% in July.  This is also a record high for gyms in 2023. 

This one we'll need to look at closely, too, as we have heard from small business owners of gyms that it has been very hard to bring back past, pre-COVID customers, while also competing with the proliferation of national fitness chains. 

Summer months also tend to see drops in gym memberships, especially in northern regions where people are spending more time exercising outside.

Just as we saw some positive -- and negative -- turbulence in the rent delinquency rates for industries, there's a lot of activity among states' delinquency rates, too. 

Rent Issues Rising In MD, TX, AZ, CA, MA, WA, MI & CO

Here's a comprehensive chart summarizing where key states are on the rent delinquency spectrum right now.

As this chart illustrates, the Top 10 states with the worst SMB rent delinquency rates in July are:

• MD (55%, Up 16%)
• TX (47%, Up 15%)
• AZ (40%, Up 2%)
• NJ (38%, Down 10%)
• GA (37%, Down 7%)
• OH (36%, Down 8%)
• CA (35%, Up 1%)
• MA (35%, Up 12%) -- This is the highest delinquency rate for Massachusetts in 2023. Given the traditionally high rents here, it's worth watching to see if problems persist next month. 
• WA (33%, Up 20%), and
•  FL (32%, Down 14%).

And beyond those, while MI and CO are far down on the list of the top states with rent issues, each one experienced a major jump from June's record-breaking low delinquency rates. 

• MI is now at 28%, up 17 percentage points from 11% last month. 
• CO is now 21%, up 10 percentage points from 11% in June. 

It's worth bringing back the state rent spike chart we mentioned earlier in the report, which would help explain some of the swings in rent delinquency in July.

Notice that Texas has the highest percentage of small business owners hurt by escalating rent costs and it ranks as No. 2 on July's rent delinquency list.  That's no coincidence. Those skyrocketing rent costs are negatively affecting Texan small business renters, for sure. 

Here are a few other findings:

• Colorado is No. 2 on this list of SMBs struggling with rising rent prices. That alone can at least partially explain why the delinquency rate spiked by 10 percentage points from June to July.
• The same could be said for WA (with 63% of its SMB owners wrestling with spiking rent costs). The same goes for MI and CA. 
• Finally, the fact that 44% of the SMB owners in MA are also grappling with major rent hikes is definitely a factor in the surge in delinquencies from June to July uncovered by this report. 

Let's see where the rent spikes and rent delinquency rates land in August. But for now, it's important to highlight the insights that have emerged this month. 

Some VERY Positive Developments In IL, NY, VA, PA, & NC

Meanwhile, there were certainly some victories to celebrate in terms of rent delinquency rates in July, as well. 

First up, Illinois, which is usually topping the chart of small business rent issues, saw a 16 percentage point decline in the right direction from June to July, and its delinquency rate has been cut in half compared to what it was in May. 

That represents a great deal of turbulence, but it is a step in the right direction for a state that's been struggling for the past couple of years with its small business economy. 

Beyond all of that, Illinois' small business owners also achieved a record low for 2023 in July.  Let's hope it holds in August.

New York's SMB owners also saw a nice shift, nine percentage points down, landing at a rate of only 23% -- another record low in 2023 for this state.

Pennsylvania at 21% now, down 17 percentage points from June, and North Carolina, at 17% now, down three percentage points from last month, also broke state records for the lowest rates in 2023. 

Virginia tied its 2023 record for the best rate in July at a delinquency rate of only 22%. 

Do The Findings In Canada Mimic Those In The U.S.?

Canada's national SMB rent delinquency rate for July was the same as what we found in the U.S. -- 37%. And similar to the U.S., that's a slight improvement from 39% in June. 

That said, nearly four out of 10 small business owners couldn't pay rent in July -- and that remains a daunting problem and one indication of an unstable small business economy.

Of the largest provinces, Alberta's small business owners had the highest delinquency rate, as 43% couldn't cover their July rent in full and on time.  That was three percentage points higher than last month.

Ontario had the second-highest delinquency rate with 35% of its SMB owners unable to pay July's rent.  Fortunately, that marked an improvement of five percentage points. Let's hope they can keep that up next month.

Finally, British Columbia had a rate of only 29%, eight percentage points lower than both last month's rate and Canada's current national average. 

As in the U.S., several economic forces are converging nationally, still posing great obstacles to small business owners who really want to fully recover from the COVID Era and thrive.  

That said, their ongoing resilience and ingenuity is helping several make great strides, including many landlords. 

But there's still a very long and likely winding road ahead for other small business owners in both the U.S. and Canada. 

As we have in past reports, again, we ask that any purchases you make occur first among your local merchants. Keeping your money close to home helps everyone.

Need More Specifics? 

To see more detailed findings from Alignable's July Small Business Rent Report covering other industries, states, provinces, or demographic groups, please contact me at chuck@alignable.com.

To review past poll results, go here or to the Alignable Research Center.

About The Alignable Research Center

Alignable is the largest online referral network for small businesses with 8 million+ members across North America.

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.