Rent remains a pain point for small businesses even as overall inflation cools off

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NEW YORK (AP) — While many costs have come down for small businesses, rents remain high and in some cases are still rising, forcing many owners to make some uncomfortable decisions.

“Every time rents go up, we have to raise prices to keep up,” said Adelita Valentine, owner of HairFreek Barbers in Los Angeles. “But with the cost of living going up, it’s hard on our clients.”

Other landlords are choosing to delay payments or look for new locations where rents are lower. A few are resisting landlords.

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Despite the decline in inflation, it remains a major concern for small businesses. According to internal data from Bank of America, rent payments per small business customer rose 11% year-over-year in July. That’s more than double the increase in renting and owning a home, a measure known as shelter, according to the government’s monthly Consumer Price Index. That figure rose 5.1% in July.

While the situation has improved since the height of the pandemic, a survey of more than 6,000 small business owners by business networking platform Alignable found that 41% were unable to pay July rent on time and in full, and 52% said they had experienced rent increases in the past six months.

Valentine’s barbershop rent rose to $4,000 in January from $3,600 in December, the fifth increase in the past eight years. Valentine had to raise her haircuts from $35 to $40.

Two months ago, she moved to another place for a lower rent of $3,200, but her space is smaller now, and she’s seeing fewer families coming.

“Many people cannot afford to take the whole family for a haircut,” she added, after the price increase.

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Peter Yu has owned iPAC Automotive, an auto repair and detailing shop in Ontario, Canada, for six years. He said the rent at the store typically rose about 4% a year. But when the landlord sold the property to a new owner, Yu’s rent jumped from about $1,800 ($2,500 CAD) to about $2,700 ($3,700 CAD) three months later.

He considered moving, but decided that the cost of moving would be more than just paying the extra rent.

Yu tried to raise prices a month ago, but customers would come in and say, “Oh, the prices are too high,” and then leave, he said. So he had to give up the price increase in order to win those customers back.

“When we try to raise our prices, consumers don’t have the money to pay for it. They look for financing options,” he said. Yu’s services range from paint corrections that cost a few hundred dollars to troubleshooting battery and electric drive units for out-of-warranty Teslas that can cost up to $15,000.

So, instead, he’ll try to improve his marketing, make more sales, and find a way to raise more funding.

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Sometimes, standing up to your landlord pays off. Jana Rodriguez has run The Innovative Daycare Corp. out of her home in Freeport, New York, since 2018. When she first signed a lease, she paid $3,500, plus costs including landscaping and maintenance. In 2020, the pandemic hit, and her landlord raised her rent to $3,800 and made her start paying half of her landlord’s insurance. Last year, her landlord raised her rent to $4,100, plus additional expenses.

Rodriguez raised her rates for the first time, by $10 per child per week, to help offset the rent increase.

This year I successfully fought off my landlord’s attempt to raise the rent again.

I told them, if you do that, I’ll find another property to move my business to, because at this point you’re trying to bankrupt a company, right?

The plan has worked so far, but Rodriguez is worried about the future.

For others, negotiating late payments is an option. Nicole Bomeji, owner of Minneapolis-based The Cookie Cups, which makes cookie kits for kids, has 4,000 square feet of office space and a warehouse where she’s developing her line of baking kits. Her rent has risen 10 percent this year to $4,000 a month. Then there are the unexpected bills, like $1,500 for shoveling snow.

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“There are a lot of things that come up that you never expect,” she said. “And it always happens when you least expect it.”

Pomeji didn’t raise prices, instead trying to mitigate high rental costs by buying materials in bulk — such as ordering 5,000 boxes instead of 1,000 to get a 40% discount — and finding cost savings elsewhere.

However, there have been several months over the past two years where she has not been able to pay the rent on time. So far, her landlord has been cooperative.

“If we had a conversation like, ‘Hey, we don’t know if we’re going to make it in the first month this month. Maybe it’s closer to the 10th,’” she said.

Asked if she thought costs could come down in the future, Pomeji said she was focused on the present.

“It’s weird, but I try not to think too much ahead and just try to do what we need to do, get ready for the holiday season, and get everything paid off on time now,” she said. “Then we’ll reevaluate everything in January.”

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