New '23 Record: 55% Of SMBs Burdened By Rising Rent Payments; Nearly 40% Can't Pay In June

RENT REPORT | DATA INSIGHTS | BOSTON, MA: June 28, 2023 -- Rent spikes are increasing for the fifth straight month for more small business owners as 2023 proceeds, breaking yet another record. 

Now, 55% say they're paying more now than they did six months ago.  And 16% say their rent is over 20% higher than it was in January (up 2% from last month). 

The 55% figure represents a steady climb in the number of small businesses dealing with rent spikes -- up eight percentage points from 47% in January.  

The situation is so intense that nearly four out of 10 small businesses were unable to pay their June rent in full and on time.  This rent delinquency rate is tied with April's as the highest so far this year -- 39%. 

That's all based on the latest data, revealed in Alignable's June Small Business Rent Report today.

While there is some relief reported from a reduced inflation rate, the rents rising negate much of that relief. Beyond that, the inflation rate remains higher than average -- and the cumulative effects of inflation are really what impact small business owners. 

In fact, 62% of SMBs have yet to earn as much revenue monthly as they did prior to COVID, over three years ago. The cumulative effects of higher-than-usual inflation have played a big role in preventing those recoveries. 

Worse yet, the revenues small business owners are earning are dropping (see below), as rents are rising, creating financial pressure, exacerbated by other economic challenges including increasing interest rates. 

This report is based on Alignable's new poll of 4,801 randomly selected small business owners from 6/5/23 to 6/27/23, as well as data from 79,000+ other responses chronicled from surveys over the past 18 months. 

Quick Summary Of June's Small Biz Economic Climate

Alignable's Research Center uncovered other top insights, including:

• 58% of minority SMB owners couldn't pay rent (up 1% from May)
• 55% of small businesses in education (up 19%), 46% in manufacturing (up 7%), and 45% of restaurant owners struggled to make June rent (up 1%).
• Key states broke 2023 records for June rent delinquency rates:
  • NJ: 48% of small businesses couldn't pay rent (up 18%)
  • FL: 46% (up 8%)
  • OH: 44% (up 8%)
  • VA: 39% (up 14%)
• Others states remained higher than average, including:
  • GA: 44%, marking a dramatic 29-percentage-point jump from May. 
  • IL: 42%, rounding out the Top 5 highest delinquency rates nationally.

And the best states to be in a small business right now, appear to be the following, all of which have dramatically low rent delinquency rates for June:

• Washington State: SMBs here have the second-lowest rent delinquency rates, down 22 percentage points from May, landing at a mere 13% unable to pay their rent in June.
• But the winners are small businesses in Colorado and Michigan, where delinquency rates are just 11%, down five percentage points from May. These are also the lowest rates in each state over the past year, which is very encouraging.
• Meanwhile, Canadians also had some good news. While 39% couldn't cover their rent this month, just like their peers in the U.S. that was 14 percentage points down from 53% in May, showing some promise that the Canadian small business economy is improving -- at least for now. Let's see what happens in July. 

Looking more closely at these highlights, we'll start with the troubles confronting minority-owned businesses.

Examining Minority Small Business Rent Woes

Other major findings include that minority-owned businesses are having a tougher time affording rent in full in June than any other demographic group. 

They experienced a new high for 2023 -- a rent delinquency rate of 58%, up another one percentage point from May. 

This 58% rate is 17 percentage points higher than it was in February of this year, when it looked like times were getting better. The chart below shows the rent delinquency landscape for minority-owned businesses so far in 2023.

Taking a deeper data dive, minorities polled are having a harder time with increasing interest rates, cash reserves, and rent spikes than the rest of the business owners surveyed. 

Some 23% of minority business owners said they're highly concerned increasing interest rates have already hurt their businesses. This is compared to 19% across all demographics, marking a four-percentage-point difference. 

Similarly, 40% of minorities say they have one month or less of cash reserves now, compared to an average of 30% across all groups. (That 39% figure is six percentage points higher than June, which is highly worrisome. If businesses run out of cash, they close). 

To make matters even worse, 65% of minority small business owners say their rent is higher now than it was six months ago, a full 10 percentage points higher than the already record-breaking national average of 55%. 

Naturally, these figures make one question if disadvantaged small business owners are receiving enough federal assistance to help them combat a host of increasing economic challenges. 

Why Many Rent Delinquencies Are Climbing

Beyond increasing rent spikes, financial setbacks from rising interest rates, and issues with cash flow, SMB owners taking Alignable's June Rent Poll specified additional financial pressure points sidelining their attempts to grow and prosper.

• INFLATION's STILL THE NO. 1 WORRY: One-third of those polled said inflation remains their top concern, but that is less than last month's figure of 39%. So there's a little bit of a silver lining we'll have to watch to see if it continues.
• RAMPING UP REVENUE CONTINUES TO BE A MAJOR WORRY: The next most-daunting hurdle is generating more sales, cited by 19% of SMB owners in April, and 21% in both May and June. Reflecting the growing need to generate more revenue, the money SMBs reported earning in June is still much less than they need.
  • In June, 53% of those SMB owners earned half or less of what they generated this time last year. That's 2% worse than what they reported in May, and 5% worse than in April, where only 48% made half or less than last year.

Now let's see what the rent delinquency landscape looks like across a variety of sectors.

Education, Manufacturing & Restaurants Are Hurting Again

Reviewing delinquency rates across different industries shows that SMBs in sectors including education, manufacturing, and restaurants are in rough shape in June. 

In fact, educators and manufacturers broke 2023 records for rent delinquency.

Educators top the list of industries suffering the highest rate of rent delinquency -- with 55% saying they couldn't afford June rent.

Even more discouraging, that rate increased 19 percentage points from May, and a whopping 45 percentage points since April. Rent problems for educators haven't been this bad since October 2022.

Manufacturers are in the second-highest spot, with 46% of small business owners in this sector defaulting on their June rent. This figure is seven percentage points higher than it was in May.

And restaurants are right behind with 45% of these small business owners defaulting on their full rent in June. 

While this figure is only one percentage point worse than May, it remains a very high percentage, especially since most restaurants are highly dependent on their brick and mortar presence to generate revenue and stay in business. 

Falling behind too many months behind on rent can mean the end for these businesses, which are very challenging and expensive to run even when they're performing well. 

But Did Any Sectors See Improvements In June? 

Among the most-promising insights in this entire report were found among the following sectors:

• Travel/Lodging -- Only 33% couldn't make June rent, down from the top of May's chart --  representing a major drop of 14 percentage points from 47% last month. The official beginning of summer has had a wonderful effect on this industry and let's hope these independent travel businesses keep the momentum going for July, August, and September. 
• Retailers -- These Main Street residents have been fighting many battles over the past year, but as of June, they seem to be finally treading water. Only 33% couldn't make June rent, down 12 percentage points from 45% in May. This might be a tentative victory at this point, but it is certainly worth celebrating, at least for now. (This means consumers should continue to spend more on Main Street than they do on Amazon -- we still have a long way to go until brick-and-mortar retailers are thriving again). 
• Automotive -- Car dealers and repair shops have shown rather erratic numbers over the past year, but as of June, only 20% of the SMBs in this category couldn't pay this month's rent. That's the lowest delinquency rate these small business owners have seen in 2023 so far. It's also down by the highest percentage compared to all other industries we track -- declining 19 percentage points from 39% in May. 

Moving from industries to states and provinces, we also see both more good news and bad news in the rent delinquency trends. 

Worst Rent Delinquency:  NJ, FL, GA, OH, IL, MD & VA

The Top 6 states with the highest rent delinquency rates have shifted in many cases from May to June, but two remain in the Top 6 for both months. 

• IL was No. 1 in May and is now No. 5 in June. And is now at a still-high rent delinquency of 42%. (But it is 10 percentage points better than it was in May).
• MD was No. 4 in May and is now tied for No. 6 in June with VA, dropping seven percentage points from 46% to 39%. 

The other remaining states in the Top 6 for rent delinquency in June are:

• NJ, which is now No. 1 with a 48% delinquency rate, is up a monumental 18 percentage points from 30% in May -- a new 2023 record. All eyes will be on NJ over the next month to see if this trend continues. Given the high rents in NJ, it's not a surprise this state landed in the Top 6 in June. 
• FL is now No. 2 with a 46% rate, up eight percentage points from 37% in May. Also, a new 2023 record.
• GA, is now No. 3 and had the most significant month-over-month surge from a low of 15% in May, to 44% in June, up 29 percentage points. 
• OH is now No. 4 with a rate of 44%, up eight percentage points from 36% in May. Like NJ & FL, OH just broke a new record for 2023. 
• VA was mentioned above, tied for the No. 6 slot, but it's important to note that the small businesses there also broke a 2023 record, as the June rate of 39% surpasses all other months this year. It also represents a major 14-percentage-point jump from just 25% in May. 
  

On the other end of the spectrum, delinquency rates for these three states broke records for being so low, indicating some degree of economic recovery. These were WA at 13% and CO as well as MI, which are each at just 11%.  Small businesses in all three of these states have made significant strides toward prosperity, at least for now.

Canada Has More Good News To Share

• As mentioned above, the June rent delinquency rate for small business owners in Canada is 39%, down 14 percentage points from 53% in May.  
• And in key provinces, there was some major improvement, as well. 
• In Alberta, 68% couldn't pay their May rent. But in June, that figure is just 40% -- a drop of 28 percentage points.  
• In British Columbia, 54% didn't make May rent. But now, in June, that number dropped to 37% -- down 17 percentage points. 
• However, the situation is a bit different in Ontario.  Like Alberta, June's rent delinquency rate is 40% here, but that's two percentage points higher than the 38% figure in May. 
• While most of these figures represent economic progress in Canada, they are still relatively high. And it will be important to see if this trend continues into the rest of the summer.

Need More Specifics? Let Us Know

To see more detailed findings from Alignable's June 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.