Rent Problems Worsen As '24 Rolls On: 40% Of SMBs Couldn't Cover February Rent, Up 3%

RENT REPORT | DATA INSIGHTS | BOSTON, MA -- March 12, 2024: On the heels of today's news of increasing consumer inflation, Alignable's February Rent Report shows that many small business owners are reporting elevated financial stress as 2024 proceeds. The U.S. rent delinquency rate for small, independent business owners jumped three percentage points from 37% in January to 40% in February. And inflation is cited as their No. 1 financial concern. 

According to the Rent Report, one reason for that increase in rent delinquency was a jump in SMB owners who are faced with rent increases compared to six months ago -- revealing that 55% are struggling to cover rent spikes (up three percentage points from January). Of that group, 16% say rent is at least 20% higher (up two percentage points over January). 

And rent spikes aren't the only issue. SMB owners say prices are much higher now than they were six months ago for supplies, labor, food and more. Meanwhile, revenues are declining, and interest rates remain high, posing additional hurdles to small business success. 

These findings are based on responses from 4,703 randomly selected small business owners surveyed from 2/1/24 to 2/29/24, as well as input from 100,000+ other respondents over the past two years. 

Alignable's Rent Reports have 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, how long will some of these entrepreneurs will be able to stay in business?

Many Sectors & States Struggle. But Some Show Hope.

Industries including restaurants, beauty salons, real estate, construction, and entertainment saw increases in rent delinquency from January, as did many states, such as Illinois, California, New York, Maryland, Texas, Florida, Arizona, Michigan, and Ohio.

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

In contrast, a few industries saw delinquency rates drop from January, including science & technology, travel/lodging, retail, gyms, manufacturing, and transportation. 

States coming out ahead in this report with declining SMB rent problems include: Colorado, Washington, Pennsylvania, and New Jersey. 

Finally, minority-owned small businesses also had lower rates from January, as this chart shows, marking a drop of five percentage points over one month -- from 50% to 45%. And that marks a 16-percentage-point drop since November, which is even more encouraging. 

That said, a rent delinquency rate of 45% is still high, though it's not as bad as the situation has been over many months since the pandemic struck. We'll see what happens in the coming months, to see if further declines reflect clear signs of recovery.  But for this report, this is, indeed, the most-promising silver lining. 

Economic Squeeze Tightens

Additional findings from Alignable's February Rent Report pinpoint cumulative problems faced by many small businesses, especially those in the most-troubled industries and states listed above.

Negative economic trends hit small businesses harder and last longer than larger companies, since Mom & Pop operations, and freelancers lack the capacity to absorb risks and weather the storm of increased costs.

Here are just a few related statistics illustrating the true State of Small Business based on our recent findings:

• Rent Spikes Pack More Of A Wallop: 55% say they're confronted with higher rent requirements now than they faced just six months ago (up three percentage points from January). Beyond that, 16% are being charged over 20% more in rent (up two percentage points).  
• Inflation Is Still The No. 1 Concern & Is Edging Up: 29% of SMBs say inflation is still their top worry, and they feel the effects are cumulative. That's up from 27% in January. 
  
• Disappearing Revenues: 71% of SMB owners said they're making less money now than they did this time last year (8 percentage points worse than January -- 63%).  And, of that group, 48% are making half or less of what they generated a year ago. (That's four percentage points higher than January, which was 44%). 
• Interest Rate Stagnation Continues: 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.  
• Supply Costs Are Growing: 77% of SMB owners said their supply costs are higher now than this time last year, with 19% noting prices are over 25% higher than they were in February 2023. 
• Labor Woes Are On The Rise: 60% of small business employers say expenses around employees are higher this year than last, with 11% adding that their labor costs are over 25% higher than they were in Q1 2023. (That 60% figure increased by six percentage points from just 54% in January).

To further demonstrate the toll 2024's economy is taking on small businesses, only 32% of pre-pandemic small businesses have fully recovered from the last four years of economic upheaval (down two percentage points from January). 

That means 68% of these SMBs still need to make up for the time and money sacrificed over four rather volatile years. 

Sector Snapshot: Restaurants Top List Of Delinquencies

Looking at the following two charts, it’s apparent that restaurants are having major problems now with rent, as that industry tops the list of those suffering from high delinquency rates. Rent issues for restaurants were relatively low a few months ago, but they have edged upwards each month from November.

Science & technology companies, as well as travel/lodging pros, are right behind the restaurants. But both of those industries are down by seven or eight percentage points from January. However, their overall delinquency rates are still high and above the new national average of 40%. 

Rent delinquency rates are up for several sectors:

• Now, 43% of restaurant owners couldn't pay their rent in full and on time. That's up from 39% in January, 36% in December, and 35% in November. 
• Musicians and artists saw an 11-percentage-point increase from 29% in January to 40% in February. 
• Beauty salons also saw a big jump of 7 percentage points from 31% in January to 38% in February, as did small Real Estate firms.
• Now, 38% of realtors can't pay their rent, seeing a decline in rent delinquency that started in November reverse itself in February.
• Rent issues for small construction companies also increased, where 37% had trouble with rent in February, up two percentage points from January. 

Other than the declines in delinquency among the science & technology and travel/lodging sectors, transportation experienced a significant drop, as well. 

In January, 37% of those in transportation couldn't cover rent, but that figure improved by 14 percentage points in February, landing at just 23%. Let's see if that kind of progress can be replicated in March, too. 

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

Rent Problems Rise For Most States: NY, CA, IL, TX & More

Reviewing the state chart below, you can see that most of the states focused on here saw some big increases in rent delinquency among their small business owners from January to February.

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

1. Maryland at 57%, up 19 percentage points since January.  
2. California at 49%, up 15 percentage points.
3. Texas at 49%, up 10 percentage points since January. 
4. Arizona at 48%, seeing a lift of nine percentage points.
5. New York at 44%, up six percentage points. 
6. Illinois at 43%, which had a comeback story in January, but jumped up again 14 percentage points in February.  
7. Florida at 40%, matching the nation, up nine percentage points. 
   
8. Ohio at 35%, up three percentage points.
9. Michigan at 34%, up a whopping 13 percentage points. 

However, when it comes to the states, not all of the news is discouraging. 

But The Good News Is That Some States Improved 

Here's much more encouraging data to wrap up today's report:

•  Colorado has the lowest rent delinquency rate in February at just 23%, down two percentage points from 25% in January. 
• Washington State is next in line with a delinquency rate of just 27%, down 11 percentage points from 38% in January.
• Pennsylvania is at 32%, down nine percentage points.
• New Jersey is at 34%, dropping four percentage points.
• Massachusetts is at 35%, declining three percentage points from 38%. 

To see more detailed findings from Alignable's February 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.