37% Of Small Biz Owners Can't Pay Jan. Rent. Tech Firms Are Hit Hard

RENT REPORT | DATA INSIGHTS | BOSTON, MA -- February 2, 2024: In contrast to encouraging economic indicators shared by the federal government over the past few weeks, the financial situation for many small business owners continues to be very challenging, as 37% could not afford their January rent. 

These struggling businesses are contending with mounting issues: a fresh wave of rent spikes, increased supply costs, reduced revenues, still-high interest rates, and the negative effects of cumulative inflation. 

Compared to January 2023, 2024 is starting out on a sour note for many small businesses in the U.S.  A year ago, only 30% couldn't pay the rent, seven percentage points lower than today's 37% figure. 

Now, there's a slight silver lining because the 37% figure is four percentage points lower than December's 41% delinquency rate. But the fact that 37% of small businesses still can't pay their rent in full is a daunting number -- and it's largely because of a variety of snowballing economic issues.

These findings and many more can be found in Alignable’s January 2024 Rent Report, released today. They're based on responses from 6,101 randomly selected small business owners surveyed from 1/1/24 to 1/30/24, as well as input from 100,000+ other respondents over the past two years. 

Alignable's Monthly Rent Report has been widely used as a barometer of the overall health of the small business economy, by national media and other influencers, since it was first released in April 2020. That's because if small businesses can't afford to pay a basic cost like rent -- what else are they unable to afford? This question naturally leads to worries about how long these entrepreneurs will be able to stay in business. 

Many Sectors & States Struggle. But Some Are Improving.

Industries including science & technology, travel/lodging, retail, gyms, restaurants, and manufacturing saw jumps in rent delinquency from December, as did several states – Pennsylvania, Texas, Massachusetts, Virginia, and New York, to name a few. 

In several cases, the increases were substantial and need to be watched very carefully in the coming months. (See more details below).

On the flip side, a few industries saw delinquency rates drop from December, including the automotive, construction, beauty, and real estate sectors. 

States coming out ahead in this report with declining SMB rent problems and rates under 30% include a few welcome surprises: Illinois, Colorado, and Michigan. 

Finally, minority-owned small businesses also had lower rates from December, as this chart shows, marking a drop of nine percentage points over one month - from 59% to 50%. 

That said, a rent delinquency rate of 50% is still alarming for minority-owned small businesses, though it's not as bad as the situation late last year. We’ll have to monitor this figure in the months to come to see if it continues decline.

A Flurry Of Negative Economic Trends 

Supporting data from Alignable's January Rent Report highlights increasing problems faced by many small businesses, especially those in the industries and states listed above.

Major corporations can tackle these challenges with their ample resources, such as massive marketing, advertising, and social media budgets. In contrast, negative economic trends hit small businesses harder and longer, since they lack the capacity to absorb risks and increased costs as effectively as larger enterprises.

Here are just a few related statistics illustrating the true State of Small Business this month:

• Another Wave Of Rent Spikes Hits: 52% say they're confronted with higher rent requirements now than they had just six months ago. Beyond that, 14% are being charged over 20% more in rent.
• Reduced Revenues: 63% of SMB owners said they made less money in Q4 2023 than they did during Q4 2022. In fact, that number is up five percentage points from what they predicted it would be. And, of that group, 44% earned half or less of what they generated during Q4 2022.
• Interest Rate Stagnation Grows: 53% say that current interest rates continue to hurt them -- cutting into their margins, reducing consumer spending as their customers have less money, and making it harder to pay off loans or secure new ones.
• Rebound On Hold: 40% assert that until interest rates are lowered by at least three percentage points, they will be unable to start recovering economically. 
• No Relief From Easing Inflation: 58% said inflation is still negatively impacting their businesses. In fact, though 33% say lower gas prices over the past few months have helped their businesses bounce back, 65% tell us that gas prices aren’t low enough yet to combat the negative effects of other rising prices, including rent, supply, and labor costs. 
• Supply & Labor Costs Are Severe: 75% of SMB owners said their supply costs are higher now than this time last year, with 19% noting prices are over 25% more than in January 2023. And 54% say expenses around employees are higher this year than last, with 11% adding that their labor costs are over 25% higher. 

To further demonstrate the toll 2024's economy is taking on small businesses, only 34% of pre-pandemic small businesses have fully recovered from the last four years of economic strife. 

That means 66% of these SMBs still need to make up for the time and money sacrificed over nearly four rather volatile years. 

Sector Snapshot: Tech's In Trouble

Looking at the following two charts, it’s apparent that the once-robust science and technology sector is having the worst time economically of all industries right now.

Half of all small tech companies, including one-person shops, couldn’t pay their January rent in full and on time, up five percentage points from December's rate of 45%. 

Several massive layoffs from large and mid-sized tech companies have occurred already this year, and marred the employment landscape for much of 2023.

All of the layoffs and restructuring at the big companies can have a major, negative effect on tech freelancers and other companies dependent on big technology clients. Comments in the survey reflected some of this volatility, as well. 

One other factor here is AI. Based on some poll responses, fears are rising that more tech assignments (for freelancers & small business owners) will be absorbed by AI, further eroding their economic well-being.

Travel/Lodging, Retail, Restaurants, & Gyms Struggle 

Other industries that wrestled with January rent payments include: 

• Travel/lodging (48%, up 2 percentage points), and 
• Retail (41%, up seven percentage points since December). 

While 2023’s holiday shopping season was disappointing for the majority of small, independent retailers we’ve polled over the past few months, there was some economic lift in December. 

Later in the month, the retail rent delinquency rate dipped down to 32%, one of the lowest rates for retailers in a while. But, now in January, it’s back over 40% yet again. 

Rent delinquency rates also are up again for:

• Restaurants, landing at 39% in January, up from 36% in December.
• Gyms/fitness businesses, now at 38%, up seven percentage points from 31% at the end of last year.
• Transportation companies --37% couldn’t pay rent, up one percentage point, and 
• Manufacturers, where 34% couldn’t afford January rent, up nine percentage points. 

But there is some promising news, too, looking at the sectors.

• Real estate firms lead the pack, bouncing back from a year-round high of 45% in November, down to 33% in December and finally 31% in January. This is a major trend, as high interest rates have hurt real estate agents for many months now. 
• Beauty salons are in much better shape now, too, with a rent delinquency rate of 31%, as well, down from 37% in December, and 54% in November. 
• The automotive and construction sectors are also seeing improvements to their delinquency rates, both are down four percentage points from 39% in December to 35% in January.

Similar "good news, bad news" scenarios can be found among key states, as well. 

Rent Issues Are Up For PA, TX, MA, VA, NY & NJ

Looking at the state chart below, you can see how much of a roller coaster ride the rent story has been over the past year.

Right now, the top states with SMBs facing rent difficulties are:

1. Pennsylvania at 43%, up 12 percentage points since December.  
2. Texas at 40%, up 3 percentage points.
3. Arizona at 39%, the same as it was in December.
4. And several others tied for “Fourth Place” with 38% unable to cover rent: Massachusetts (up 8%), Maryland (down 10%), New Jersey (up 1%), New York (up 1%), and Washington State (up 1%). 
5. Tied for Fifth Place at 34% are California (down 4%) and Virginia (up 12%). 

But The Good News Is: Rates In 3 States Are Under 30%

The most encouraging data in this report comes from three states that not only show a decline in their SMBs’ rent delinquency rates, but also rates under 30% – which are, sadly, rare in these reports. 

The biggest surprise here is Illinois, which sometimes has the distinction of being the No. 1 state with the highest delinquency rates across the U.S. 

Fortunately, there’s been a turnaround among Illinois-based small business owners in December and January, indicating at least some temporary economic improvement.  

• Illinois has a rent delinquency rate of just 29% in January, down six percentage points from 35% in December and 18 percentage points from November, when it was 47%.
• Colorado is next with only 25%, down 11 percentage points from 36% in December.  
• Michigan, which has been way up on the charts in other months, is now at the bottom of this one with a rent delinquency rate of just 21%, down nine percentage points from 30% last month.

To see more detailed findings from Alignable's January 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 8.7 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.