2022 Rent Crisis Breaks Troubling Records

TREND TRACKER | DATA INSIGHTS | RENT CRISIS -- Boston, MA, June 1, 2022: Alignable’s New Q2 Rent Report shows many worrisome trends compared to April, including the first increase in rent delinquency this year.  

Released today, the new findings demonstrate the high toll of escalating costs on the financial stability of small businesses (SMBs) across North America. In fact, 33% of U.S.-based SMBs could not pay May rent in full and on time, up 5% from April. In Canada, that figure was 39%.

The New Q2 Rent Report also reveals that the majority of U.S. small businesses (52%) have experienced rent increases over the past six months, up 6% from 46% in April. In addition to other inflationary trends, higher rents are elevating rent delinquency rates. 

Of that 52% majority, 18% say their rent is up by 10% to 20%, another 14% say it's more than 20% higher than it was just six months ago.

This latest data demonstrates that the SMB rent crisis has reached a new and concerning 2022 pinnacle, regarding both rent delinquency and soaring rent costs. 

Alignable's New Q2 Rent Report is based on the company's latest survey of 5,321 randomly selected small business owners polled between 5/7/22 and 5/31/22. 

Sidelined By Shaky Finances

This rent report comes on the heels of Alignable's Small Business Inflation Study, which showed that rising costs beyond rent -- increased supply-related expenses, ever-growing gas prices, and elevated labor costs -- have stymied and even reversed the growth of the small business economy.

Meanwhile, revenues and customer counts remain below pre-COVID levels for more than two-thirds of all small business owners. 

That combination -- expenses going up, less cash coming in -- can be deadly to small businesses, if it goes on too long and reserves are depleted.

As of today, only 31% of small businesses have recovered fully, reaching their pre-COVID monthly revenue numbers. While that represents a 4% increase from April, it doesn’t come close to covering skyrocketing costs incurred by many small businesses. 

In fact, the May Inflation Report shows that many SMBs can't pass along their costs to customers -- and that's a big part of the problem. While 49% said their supply costs were up by more than 20%, only 16% felt comfortable raising their prices by more that 20%.

Beyond all of that, 38% say they have one month or less of cash on hand to get them through (yet another) rough patch. 

Rent Crisis: Even Worse Among Minority Businesses

Another major development emerging from Alignable's New Q2 Rent Report is that 56% of minority small business owners polled couldn't make their May rent, up 20% from just 36% in April. 

That's also the highest rent delinquency rate among minority SMBs in more than a year. 

In fact, the last time that delinquency rate was this high was March 2021. So, in one month, we've gone from the lowest rent delinquency rate for minority business owners in over a year, to the highest. 

Veterans who own small businesses also had a more challenging month in May as 27% of them, up 8% from April, could not pay their rent. 

Women-owned and nonminority-owned businesses saw a 4% increase in their rent delinquency rates compared to April, as well.

While all demographic groups experienced a tougher May in terms of rent delinquency, they weren't alone. Many in different sectors were affected, as well.

Topping The List: Restaurants, Salons, & Retailers

Three of the industries that struggled most during the first year of the pandemic are, once again, the lead sectors 0n a list most would like to avoid, those who can't pay their rent now. More than four out of ten restaurants (41%) couldn't cover May rent, up 8% from April, and 13% from February. 

In fact, they, too, have attained a new record for 2022, pushing any progress they've made back to where they were in October.

Salons are in second place at 40%, but at least that industry has not seen an increase in delinquency from April to May.

Rounding out the Top 3, 40% of retailers couldn't afford their full May rent, up 7% from April and 12% from February.

Other big jumps in the wrong direction occurred among:

• Animal Hospitals/Shelters: 34% fell short with rent payments, up 8%
• Auto Dealers & Repair Shops: 30% didn't make May rent, doubling from just 15% the month prior
• And 24% of manufacturers couldn't afford their rent, up 14% from 10%. 

However, there are some promising "silver linings" in this chart:

• Only 36% in the Travel/Lodging sector couldn't pay rent, down 5% 
  
• Event planners made major strides, as only 30% didn't cover May rent, down 20% from 50% the month before
• And massage therapists rallied, cutting their rent delinquency rate nearly in half. It's now only 17%, down 16% from 33% in Apr. Given all of the inflation-induced stress many of us feel, the massage pros taking our survey said more consumers are practicing self care, purchasing more massages.

For more details on different sectors and their rent delinquency rates, consult the chart below.

Trends Across The U.S. & Canada Show Major Shifts

Examining the chart below, let's focus on the Top 8 States with the highest rent delinquency rates -- all exceeding the new national average of 33%. 

• MA-based SMBs came in first place with 42% unable to pay May rent, doubling their rent delinquency in one month
• GA's SMBs had a 40% delinquency rate in May, up 10%
• NY's small biz owners had a rougher time paying rent, too, reaching a 36% delinquency rate, jumping 12% from 24% in Apr.
• CA & MI had less dramatic increases, but in both cases 35% couldn't cover the rent 
• TX rounds out the Top 6 with a 35% rent delinquency rate, increasing more than any other state (15%), not including MA
• Finally, FL's another state to watch, as it jumped 9% to 33%
  
• It's important to note that MA, GA, CA, MI, TX, & FL achieved higher delinquency rates in May than they have all year 
• NY & MD matched earlier record-breaking months
  
• And NJ & IL saw some improvement. Let's see if it continues in June.

So, What's Happening In Canada? (It's Worse)

Whereas small businesses in the U.S. have an average rent delinquency rate of 33%, in Canada, it's higher -- 39%. That figure is down by 1% from Apr., but the situation among Canadians has been and continues to be even worse than it is in the U.S.  

However, there's some variation comparing provinces. Here is what's happening in provinces with the largest number of poll respondents:

• In AB, a whopping 49% of small business owners were not able to pay their rent in full and on time in May, up 2%. That's higher than any other province or state.
• In ON, the situation was better than in AB, but still very challenging: 39% didn't make May rent, up 6% from 33% in Apr.
• However, in BC, there was some improvement. In May, the rent delinquency rate was 35%, down 6% from 41% in Apr. 

Examining Increasing Rent Costs

As mentioned earlier, one of the factors in the escalating delinquency rates can be found looking at higher rents charged by landlords.

Many landlords in 2022 have had to cover some of the costs they've been forced to absorb, by increasing what they charge for rent. In many cases, the landlords are small business owners themselves and they can't continue to go without the money they generate from rent. Otherwise, they can lose their buildings.

Let's start with Canada:

• In April, 40% of small business owners experienced increases in rent compared to what they paid six months prior
• But in May, that figure jumped 6% to 46%. Here's what occurred locally:
  • ON: In May, 51% of SMBs reported rent hikes & 14% said rent increased by more than 20%, In April, only 31% had to pay more for rent, representing an alarming 20% month-over-month spike
  • AB: In May, 47% reported higher rent, 12% said rates elevated by more than 20%. Again, this represented a 20% spike from April to May
  • BC -- Similar to delinquency rates, here fewer renters reported rent increases in May (43%) vs. April (54%), an 11% decrease over a month. But, in May, 13% said rent was over 20% higher than it was six months earlier.

Now let's dig deeper into May's U.S. rent spikes reported by poll-takers.

More U.S. SMBs Are Paying Higher Rent In May

At the beginning of this report, we revealed that the majority of U.S. small businesses (52%) have now experienced rent spikes, up 6% from 46% in April. 

But in Canada, only 46% reported paying high rents in May, a 6% increase over Apr. 

That means 6% more of the U.S. SMBs are paying higher rents than their Canadian peers in May. However, small business owners in each country saw rent go up by 6% from April to May and many comments indicate that rent will continue to go up in the coming months. 

Now, here's a more detailed look into the rent landscape among SMBs when looking their states, as well as the Canadian provinces listed above.

Zeroing in on the larger states represented in our May rent poll, 71% of FL's small business owners say they're paying more rent now than they did six months ago.  That far surpasses any other state or province. 

Comparing that to FL's rent delinquency rate of 33%, it's interesting to note that this rate increased by 9% over the past month, as the percentage of Floridians reporting rent hikes was similar at 10%. There appears to be a rather direct correlation here. 

MA is No. 2 on this chart tracking higher rent costs (58%), and it ranks as No. 1 on the rent delinquency chart (with a rate of 42%). Again, these nearly identical placements suggest a strong connection between increasing rents and rent delinquency. 

Rounding out the Top 3, NY-based small business owners are in the third spot on both the rent delinquency chart and the one addressing rent costs. 

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