Small business owners have been navigating stormy waters for the past three years, grappling with skyrocketing prices and an alarming worker shortage. Recent findings by the Bank of America Institute have shed light on a particularly pressing issue: rent inflation. For many small business owners, the ordeal of high inflation continues unabated, with rent being a significant contributor. Disturbingly, evidence suggests that small business rent inflation is outpacing that experienced by U.S. households.
To put it in perspective, the average monthly share of rent in total payments through May was 9.1% for small businesses—a sharp increase from the 2019 figure of 5.9%. By comparison, rent for individual Americans rose 5.3% during the same period. It’s clear that while everyone is feeling the pinch, small business owners are bearing the brunt of this financial squeeze. The situation is particularly grim in the Western United States, with cities like Las Vegas experiencing rent shares in May that more than doubled the national average.
The extent of the issue is further illustrated by a help-wanted sign posted in the storefront window of Kay Cameron Jewelers in Sayville, New York. This sign is emblematic of the larger struggle. According to the Bank of America report, rent payments per client closely track the nonresidential real estate rents component of the producer price index. This suggests that the rent increases are primarily due to inflation, not because small businesses are upgrading to larger or more luxurious spaces.
Separate data from business networking platform Alignable paints a sobering picture. A growing number of small businesses are falling behind on rent payments. In April, approximately 43% of small business renters in the U.S. were unable to pay their rent in full and on time. This alarming statistic underscores the dire financial straits many small business owners find themselves in, as they struggle to keep their doors open amid relentless rent hikes.
Despite these challenges, there is a glimmer of hope. The National Federation of Independent Businesses (NFIB), a Tennessee-based association of small business owners, reported that its small business optimism index rose in May to the highest level since November 2020. However, about one-quarter of owners identified inflation, driven by labor costs and higher input prices, as their most pressing problem. Bill Dunkelberg, NFIB’s chief economist, noted that for 29 consecutive months, small business owners have expressed historically low optimism, with their views on future business conditions at the worst levels seen in 50 years.
As inflation continues to ravage Main Street, small business owners are in desperate need of relief. The latest government data shows the consumer price index jumped 3.3% in May. Consequently, about 25% of small business owners reported raising prices to counteract high inflation, a figure unchanged from April, while 12% reported lower average selling prices. The persistent financial pressures underscore the need for comprehensive solutions to help small businesses weather this ongoing economic storm.