SMB Woes Escalate As 54% Struggle With Rent Spikes (Up 7% from Jan.) & 57% Of Minorities Can't Afford May Rent (Up 9% from Apr.)

RENT REPORT | DATA INSIGHTS | BOSTON, MA: May 31, 2023 -- Rent spikes are increasing for more small business owners as 2023 proceeds, breaking a new record: 54% say they're paying more now than they did six months ago.  And 14% say their rent is over 20% higher than it was in December.

The 54% figure represents a steady climb in the number of small businesses dealing with higher rent prices each month in 2023 -- up seven percentage points from 47% in January.  

Meanwhile, the revenues small business owners are bringing in are dropping (see below), as rents are rising, creating intensifying financial pressure, exacerbated by other economic challenges including still-high inflation, increasing interest rates, and greater recessionary fears. 

This pressure is so severe, 37% of small business owners in the U.S. report they couldn't afford to pay their rent in full and on time this month, according to Alignable's May Small Business Rent Report, which has just been released. 

This report is based on Alignable's new poll of 4,424 randomly selected small business owners from 5/6/23 to 5/30/23, as well as data from 75,000+ other responses chronicled from surveys over the past 18 months. 

Summing Up Additional Data Revelations

Alignable's Research Center uncovered other top trends including that:

• 57% of minority SMB owners couldn't pay May's rent (representing the worst surge of the year so far, up 9 percentage points from 48% just a month ago)
• Several states broke 2023 records for rent delinquency rates in May:
  • 52% of Illinois-based SMBs (up 11% over Apr.)
  • 48% of New York's small businesses (up 6% vs. Apr.)
  • 47% in Minnesota (up 2% vs. Apr.)
  • 41% of CA-based entrepreneurs (up 9% compared to last month)
• Meanwhile, only 7% of Arizona's small businesses couldn't handle May rent payments, down eight percentage points from Apr. Arizona has the lowest rent delinquency rate among SMBs in the U.S.
• 45% of retailers struggled to make May rent (up 4%)
• 47% in the travel/lodging arena experienced the same issue -- up 20 percentage points over last month
• While the national average for the U.S. in May was 37% (a slight, 2% improvement from April), it was even worse in Canada, with 53% of businesses north of the U.S. border reporting rent delinquency. 

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

Examining May's Startling Rise In Minority Rent Woes

Other major findings include that minority-owned businesses are having a much tougher time with the May rent than any other demographic group. 

They experienced their most significant surge in rent delinquency so far in 2023 from April to May, jumping nine percentage points from 48% to 57%, which also is a new high for 2023. 

This 57% rate is 16 percentage points higher than it was in February of this year, when it looked like times were getting better. Those times were short-lived, unfortunately. 

The chart below shows the rent delinquency landscape for minority-owned businesses so far in 2023.

Diving more deeply into the data, minorities polled are having a harder time with increasing interest rates and cash reserves than the rest of the business owners surveyed. 

Some 37% of minority business owners said they're highly concerned increasing interest rates have already hurt their businesses. This is compared to 25% across all demographics, marking a 12-percentage-point difference. 

Similarly, 33% of minorities say they have one month or less of cash reserves now, compared to an average of 30% across all groups. 

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 May Rent Poll specified additional financial pressure points sidelining their attempts to grow and prosper.

• INFLATION WEIGHS MORE HEAVILY IN MAY -- While higher-than-usual inflation has been cited as the No. 1 enemy of small businesses bouncing back for the past 18 months, it jumped in importance from April to May.
  • In April, 32% of those polled named inflation as their No. 1 problem.
  • But that jumped another seven percentage points in May, all the way up to 39%.  

• RAMPING UP REVENUE IS A SECONDARY, BUT GROWING WORRY: The next most-daunting hurdle is generating more sales, cited by 19% of SMB owners in April and 21% in May. Reflecting the growing need to generate more revenue, the money SMBs reported earning in May vs. April has dropped, as well. 
  • In May, 45% of small business owners with companies launched prior to COVID said they made half or less of what they earned monthly prior to the pandemic. In April, that figure was just 39%. 
  • For post-pandemic businesses, the news is even more disappointing. In May, 51% of those SMB owners earned half or less of what they generated this time last year. 
    • That's 3% worse than what they reported in April, where only 48% made half or less than last year.

• FEARS OF RECESSIONARY DAMAGE: Given the current economic forecast from various experts, we also asked this question of our May poll takers: "If we were to officially enter a time of recession, how concerned are you that your business will suffer?"
  • More than two out of three (67%) said they were "concerned" about a recession hurting their business, with 27% stating their businesses are already suffering from recessionary trends. 
  • Of that 27%, 4% stated that they could be forced to shut down. 

• FEWER THAN ONE-THIRD ARE DECLARING A FULL RECOVERY, MATCHING PRE-COVID REVENUES: Finally, the percentage of small businesses that are making as much, if not more on a monthly basis, than they did pre-COVID has also dropped, as yet another pervasive indicator of increasing economic struggle. 
  • In May, only 32% of SMBs that started prior to COVID have fully recovered to their former economic glory. That's two percentage points lower than April, which was 34%, and six percentage points lower than the 38% recovery rate at the beginning of 2023.

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

45% of Retailers Couldn't Pay May Rent (Up 4% from Apr.)

Reviewing delinquency rates across different industries shows that retailers, once again, are suffering a lot in terms of their ability to afford rent spikes and drive more business. In fact, retailers broke a 2023 record, making May their worst month yet this year for rent delinquency.

Those in construction also share that dubious distinction, as 44% couldn't cover May rent in full, including general contractors. That figure showed an eight-percentage-point jump from April. 

But SMBs in lodging and travel had the worst May of anyone, jumping a whopping 20 percentage points to a delinquency rate of 47%. 

This is just shy of their record this year, but shows how erratic rent problems have been in this sector, especially since these SMB owners started 2023 at their lowest delinquency rate (12%) in over a year.

Restaurants saw some modest improvement in May, dropping five percentage points from the staggering 49% figure in April, landing at 44%, which is far from out of the woods, but a step in the right direction. 

SMBs in the automotive industry had rent delinquencies that jumped four percentage points from April, settling at 39% for May. But their comrades in transportation saw a major drop of 20 percentage points, all the way down to a delinquency rate of just 33% (from 53% in April). 

Transportation Sector Sees Some Good News 

Many attribute this transportation industry delinquency decline to a general decrease in gas prices over the past couple of weeks in many states. Let's see if this lower rate lasts for trucking companies, Uber drivers, limo services, and the like in June.

Another industry to watch is run by gym owners and fitness experts. While their rate is at 35% in May, two percentage points lower than the 37% average, it is up 12 percentage points from 23% in January, and has been climbing each month so far in 2023. 

Summer months are not always terrific for gym owners, as some members opt for outdoor activities, so we'll be laser-focused on them in June and beyond. 

And many states and provinces are showing even greater volatility than some of the industries, so let's see which ones stand out in this May report.  

May's Top Rent Delinquency States: IL, NY, MN, MD, & CA

As in past months, some states saw a surge in rent delinquency, while others saw a drop. Here are the highlights, but full coverage can be found in the chart below, which maps the trends over the past year. 

The No. 1 state for SMBs who couldn't pay their rent is Illinois, with an 11-percentage-point rate surge. This month, the majority of small business owners polled (52%) from this state could not afford their rent. 

The No. 2 state for rent delinquency is New York, which now has nearly half of its SMBs unable to pay their rent in full and on time, based on our survey.

Similar to Illinois, New York saw a significant jump in the inability of its small businesses to cover their rent -- six percentage points over April, landing at 48% -- a new high for the state in 2023.

Considering that both of these states have among the highest rent costs in the country, it's not a surprise that more small businesses -- still struggling with a variety of other economic forces -- are having trouble covering increasing rent prices.

California's SMBs, now ranked in the No. 5 slot for rent delinquency, also complain of the skyrocketing cost of rent -- and generally doing business in California. 

Right now, rent delinquency there jumped nine percentage points to land at 41%, which is also a record high for CA businesses in 2023.

On the other end of the spectrum, delinquency rates for these three states have fallen below 20%: Arizona, Georgia, and Michigan. 

• Arizona dropped to an all-time low from 15% last month to 7%. 
• Georgia at 15% and Michigan at 16% also reached all-time lows, but their drops were more significant compared to April, when Georgia's rate was 36% and Michigan's was 39%. 
• We'll have to watch closely to ensure these numbers aren't just blips, but they do show a promising situation in all three of these states. 

That Sums Up The U.S., But What's Happening In Canada? 

As mentioned above, the May rent delinquency rate for small business owners in Canada is 53%, 16 percentage points higher than it is in the U.S., according to the Canadians taking our survey. 

But, drilling into the provinces, the news is even worse in some of them.

• In Alberta, 68% of those taking our survey could not pay their May rent in full and on time. That's a whopping 21 percentage points higher than April, when the figure was 47%.
• In British Columbia, the figure is just one percentage point higher than the Canadian national average, landing at 54%. While that is staggering, it is two percentage points lower than it was last month, at 56%.
• However, the situation is improving in Ontario.  While the rent delinquency rate there is still high at 38%, it's much better than what we're hearing about the situation in AB or BC.  Moreover, it's six percentage points lower than it was in April at 44%. 

For their part, the Canadians in our poll are citing many of the same ongoing economic issues as their counterparts in the U.S. as the reasons fueling their rent woes.

So, as in the U.S., we will need to keep an eye on the June and July poll results to see which way the small business economy is headed as 2023 proceeds.

Need More Specifics? Let Us Know

To see more detailed findings from Alignable's May 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.