Even with declining inflation, rents remain a problem for small businesses

NEW YORK (AP) — While many costs have fallen for small businesses, rents remain high and in some cases continue to rise, forcing many owners to make difficult decisions.

“Every time rent goes up, we have to raise prices to keep up with costs,” said Adelita Valentine, owner of HairFreek Barbers in Los Angeles. “But given the cost of living, it’s difficult for our customers.”

Other owners fall behind on rent or look for new locations where the rent is lower. Some fight back against their landlord.

Although inflation is easing, it remains a major concern for small businesses. According to internal Bank of America data, rent payments per small business customer rose 11 percent in July from a year earlier. That’s more than double the increase in rent and ownership of an apartment, a measure known as housing, according to the government’s monthly consumer price index. That figure rose 5.1 percent in July.

And 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 their July rent on time and in full. And 52% said they had faced rent spikes in the past six months.

The rent for Valentine’s hair salon went up from $3,600 in December to $4,000 in January, the fifth increase in the last eight years. She had to raise the price of her haircuts from $35 to $40.

She moved two months ago and paid a cheaper rent of $3,200. But now the space is smaller and fewer families come.

“Many people cannot afford to take the whole family to the hairdresser,” she said after the price increase.

Peter Yu has owned iPAC Automotive, an auto repair shop in Ontario, Canada, for six years. He said rent for the shop typically increases by about 4% annually. But when his landlord sold the property to a new owner, Yu’s rent rose from about $1,800 (C$2,500) to about $2,700 (C$3,700) after three months.

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

Yu tried to raise prices a month ago, but customers came and said, “Oh, that’s too expensive” and left, he said. So he had to reverse the price increase to win back those customers.

“When we try to raise our prices, consumers don’t have the money to do it. They’re looking for financing options,” he said. Yu’s services range from paint correction, which costs a few hundred dollars, to troubleshooting problematic EV batteries and electric drive units for Teslas that are out of warranty, which can cost up to $15,000.

The story continues

Instead, he will try to improve his marketing, close more sales, and find a way to offer more financing.

Sometimes standing up to a landlord works. Janna Rodriguez has operated her home-based business, The Innovative Daycare Corp., in Freeport, New York, since 2018. When she signed her lease, she paid $3,500 plus landscaping and maintenance costs. In 2020, the pandemic began and her landlord raised her rent to $3,800 and also forced her to pay half of the building’s insurance herself. Last year, the landlord raised her rent to $4,100 plus the additional costs.

To offset rising rent, Rodriguez raised her prices for the first time by $10 per child per week.

This year she was able to successfully defend herself against the landlord’s renewed rent increase.

“I told them, ‘If you do that, I’m going to find another property to move my business to. Because you’re trying to bankrupt a company, aren’t you?'”

So far it has worked. But Rodriguez is worried about the future.

For others, negotiating a late payment is an option. Nicole Pomije, owner of The Cookie Cups in Minneapolis, which makes cookie kits for children, has 4,000 square feet of office space and a warehouse where she is developing her own line of baking kits. Her rent has increased 10% this year, to $4,000 a month. Then there are unexpected bills, like $1,500 for snow removal.

“There are so many things that come up that you just don’t expect,” she said. “And always when you least expect it.”

Pomije has not raised prices, but has tried to mitigate the higher rental costs by buying large quantities of materials – for example, ordering 5,000 boxes instead of 1,000 at a 40% discount – and by finding cost savings elsewhere.

However, there have been several months in recent years when she has not been able to pay the rent on time. So far, the landlord has been accommodating.

“When we talk and say, ‘Hey, we don’t know if we’ll make it to the first of this month. Maybe more like the 10th,'” she said.

When asked if she thought costs could go down in the future, Pomije said she was focused on the present.

“It’s weird, but I’m trying not to think too much about the future and just do what we need to do, prepare for the holidays and just pay everything on time now,” she said. “And then we’ll reevaluate everything in January.”