Small Businesses Are Having a Harder Time Paying Rent, Says One Indicator

Things are getting tough for small businesses.

As a group, in October, it experienced its largest, most rapid increase in a single month in 2022, with the rent delinquency rate jumping 7%, according to Chuck Casto from Alignable.

Just in September, rent delinquency was at a six-month low, as optimism for Q4’s earning potential was high and some small business owners reported increased sales, according to Casto.

“But now, a month later, 37% of small business owners in the U.S. were unable to pay their rent in full and on time in October, compared to just 30% in September,” he said.

The reasons cited by Alignable’s polling include:

• higher rents for 51% of SMBs;
• the cumulative, negative impact of more than a year of high inflation, which has absorbed most sales gains;
• recessionary fears;
• steeper-than-usual gas prices (rising yet again);
• ongoing increases in supply chain costs;
• rising labor expenses and shortages, and
• a slowdown in consumer spending.

Datex’s September Report: YoY Rent Payment Improving

Another metric, however, provides a brighter picture of small businesses’ financial health.

Mark Sigal, CEO of Datex Property Solutions, tells GlobeSt.com, that where the Alignable report, which is based on self-reported polling data by tenants, the Datex Tenant Track Report, is based on validated collections measured as a percentage of validated billings across thousands of shopping centers and tens of thousands of merchants nationwide. It shows:

It found that SMBs have averaged payment of 88.53% of rent billed for a given month over the course of 2022 (vs. 85.73% in the same date range in 2021).

The payment range between the highest paying month (June 2022 – 89.14%) and the lowest paying month (January 2022 – 87.32%) is only 1.82%, which shows incredible stability month to month.

The most recent reported month in Datex Tenant Track is September 2022, which shows a collection rate for SMBs of 88.62%, which is closer to the peak pay month than the low pay month in 2022.

Things ‘Turning a Corner’ in San Fran

And anecdotally Santino DeRose of San Francisco’s Maven Commercial tells GlobeSt.com that small businesses are usually more resilient than large companies because they’re more resilient and tend to rely on less debt.

“There’s often only the sole proprietor behind it, or a very small group of investors, which forces you to be more self-reliant, nimble, creative and to save for inevitable rainy days,” DeRose said.

“As for small businesses here, we’re seeing things turning a corner and getting stabilized. And what’s been true before covid is really taking hold now: San Francisco has always attracted a lot of new concept stores, start-ups, and restaurants. A number of those that opened or held on during the pandemic are getting traction.”