Record-Breaking Rent Issues: 40% of U.S. SMBs Can't Pay (Up 6%)

TREND TRACKER | DATA INSIGHTS | RENT REPORT: Boston, MA -- August 24, 2022: Alignable's August Rent Report has just been released, reflecting the highest rent delinquency rate among small businesses (SMBs) so far this year: 40% in the U.S., up 6% over July's rate of 34%. 

In fact, the last time this rate was this high was in March 2021, nearly 18 months ago -- in the middle of the pandemic.

These findings emerged from a poll of 7,331 randomly selected small business owners from 8/13/22 to 8/23/22.

For Canada, August's delinquency rate among small business owners was even higher at 48%, up 11% from 37 % in July.

Cumulative Obstacles Collide & Rent Costs Are Up

Many taking the poll blamed their rent issues on a combination of mounting, negative trends in the economy, which include: 

• rent spikes
• higher-than-normal gas prices
• increases in the cost of supplies and labor
• elevated interest rates
• reduced consumer spending 
• and other emerging recessionary trends. 

Regarding rent increases, 45% of poll takers said their rent is at least 50% higher today than it was prior to COVID with 24% saying it's at least twice as high. 

Even more alarming, 12% noted their rent is more than three times higher than it was before the pandemic.

While several landlords were able to defer rent requests during the worst months of COVID, over the past few months, many have had to ask for rent payments. In many cases, they're small business owners, too, and they've gone without much of their income for over two years. Many tell us they can't hold out any longer. 

It's Even Worse For Minorities & Women

Among key demographic groups, rent delinquency rates increased across the board. 

However, in August, minorities report suffering the most, as 53% of minority-owned businesses could not pay their rent in full and on time (up 4% from July). 

Similarly, 42% of women-0wned firms couldn't cover the rent (up 7% from last month). 

The increase in rent delinquency among veterans represented the highest month over month change.  Back in July, only 28% couldn't afford their full rent. But now, that figure is 12 percentage points higher, landing at 40%. 

And 41% of nonminority business owners couldn't make August rent, up 8% from last month.

Farmers, Nonprofits & Restaurants Struggle Most

Small business owners across a variety of industries reported that 40% or more of their ranks couldn't handle their rent in August. 

Leading the pack are SMBs in agriculture (50%), nonprofits (46%), and restaurants (46%). Not far behind with a 44% delinquency rate are small businesses in the automotive, education, and travel/lodging sectors. 

Meanwhile, 43% of gyms, 41% of transportation companies, and 40% of construction and real estate firms couldn't pay their rent on time in August. And four out of 10 retailers couldn't cover their rent, either. 

As we've been tracking the rent situation facing small business owners since the pandemic started, it's important to look at some of the most recent fluctuations for key categories. 

Where Are Some Glimmers Of Hope?

Despite the largely disappointing poll results in this report, there are a few silver linings we should highlight. 

The industries where there was some improvement month over month were:

• Transportation (dropping 7% from 48% in July to 41% in August),
• Retail (declining 4% from 44% to 40%), and
• Beauty Salons (dipping 7% from 40% in July to 33% in August). 

Delving into the discouraging news once again, let's examine some major swings in the wrong direction. 

Due to factors including extreme drought, increased trucking and fuel costs, and labor struggles, small business owners running farms or working with agricultural clients took a real hit in August. 

Their rent delinquency increased by 12 percentage points from 38% to 50%.

Likewise, car dealerships, repair shops, and others in the automotive industry saw a nine percentage point increase in their rent delinquency rates.  

Travel & Lodging Pros Face Rent Obstacles Again

And just look at what's happening among Travel Agents, as well as Bed & Breakfast and Hotel owners. 

They've been flying high on a major upswing in terms of how well their rent delinquency and overall revenues were improving, as COVID regulations have eased or ceased completely.

With the exception of April, they were in the rent delinquency range of 24% to 36% since December. 

But now travel and lodging professionals have seen their rent delinquency rates skyrocket 16 percentage points from 28% in July to 44% in August. 

In their poll comments, many note that some of their clients are cutting back on vacations, as those are deemed luxuries. As stifling inflation continues, people simply have less money to spend on trips.

Interest Rates Take A Swing At Real Estate

Before we move on to what's happening in different states and provinces, we need to examine the trends affecting real estate agents, construction firms and even mortgage lenders. 

Packaging the three together paints quite a picture -- something some analysts are already calling the Real Estate Recession. 

Let's zoom in on the trends our researchers have uncovered in construction and real estate.

Rent delinquency rates among SMBs in construction and real estate have increased steadily since April, when the delinquency rate was 33% among construction firm owners and 20% among real estate agents. 

But just look at what a few months of a shrinking economy have produced. 

Construction Slows, Rent's Harder To Pay

Now, 40% of construction firms can't pay the rent (up 4% from July and up 7% from April). 

Similarly, 40% of real estate firms can't cover their August rent, doubling their rent delinquency rates from just 20% in April.

Finally, let's look at what our mortgage lenders are telling us. 

In April, all of the mortgage lenders we polled paid their rent in full and on time. But in July, 20% of them were not able to cover rent. 

And their rent delinquency rate jumped again in August by 8%, landing at 28%. 

As interest rates go up and inflation continues to bear down hard on potential home buyers, some are backing out completely, or at least delaying their house searches. 

With less demand for housing, some construction firms are halting big projects. And without buyers paying for houses, fewer mortgages are being arranged, which, of course, hurts mortgage lenders.  

There's a domino effect emerging in the real estate industry, as evidenced by August's Rent Report, and we'll be watching that closely in future studies. 

Which States & Provinces Top The Rent Delinquency List?

Moving from our industry analysis to what's happening in key states and provinces, let's start with the predominantly red column in the chart below.

That tells us a lot. Rent delinquency rates in July were, for the most part, disturbing. But for many states, those rates only escalated in August. 

The states with the highest rent delinquency rates among small businesses in August are Colorado (55%), Illinois (53%), Georgia (52%), California (44%), New York (44%), and Texas (40%). 

These all match or exceed the national average, which, again, is extremely high when we review the past year and a half of poll results.

Right behind those states, 39% of small business owners in Michigan and New Jersey couldn't pay their August rent. The same goes for 37% of the SMBs in Arizona, 35% in Florida, 33% in Massachusetts, 33% in Pennsylvania, and 32% in Ohio.

Of these states, only Massachusetts (down by 9%) and Pennsylvania (down by 1%) saw an improvement in rent delinquency rates since July. 

Canada's Rent Problems Are Even More Severe

As far as Canada goes, 48% of small businesses there couldn't pay August's rent compared to 40% in the U.S. 

And, as mentioned earlier in this report, that 48% figure was 11 percentage points higher than the 37% of Canadian small business owners who couldn't afford July's rent.

There were other noteworthy shifts looking at August delinquency rates reported by small business owners across the provinces with the highest number of poll takers.

Alberta -- In August, the rate is 31%, down 12 percentage points from 43% in July. That could be one of the best pieces of news in this entire report. Let's hope that continues in September. 

British Columbia -- This month, unfortunately, was not so kind to small BC-based small business owners. In fact, their rate of rent delinquency jumped by six percentage points from 40% in July to 46% in August. 

Ontario -- Sadly, the ON-based small businesses really slipped in terms of their August rent delinquency rate. Back in July, they were at 36%, but now, their rate has jumped 15 percentage points to 51%. Let's hope conditions improve soon and they can find their way back to some sort of economic normalcy. But for now, that increase is somewhat alarming. 

To see other specific poll data related to industries, states or provinces, please contact me at chuck@alignable.com. To review past poll results, go to the Alignable Research Center. 

About The Alignable Research Center

Alignable is the largest online referral network for small businesses with 7 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.