Nearly 40% of the more than 7,300 small business owners surveyed said they couldn’t pay their rent in the last month, according to a recent survey by business networking platform Alignable. Unfortunately, that number has increased by about 6% since July.
Businesses surveyed cited a combination of factors such as rent spikes and higher material and labor costs.
For landlords on the other side of the equation, “they [rent] Chuck Casto, Alignable’s head of research and communications, said in an interview with CNBC last month that they’ve been slipping for a year and a half and doing everything they can during the pandemic. But landlords have mortgages and tenants have to pay, he said.
This is definitely an unlucky sign. Is the same rent crisis hurting small businesses in the Philadelphia area? I spoke with two commercial real estate agents in the city, both representing hundreds of small businesses and merchants. Both agree that there is too much volatility in their markets and as a result some small businesses have been forced out of place.
“A dry cleaner I know in Lower Merion was recently kicked out of her property for not being able to pay her rent,” says Damon Michels, a real estate agent specializing in Keller Williams’ residential and commercial properties in both the Main Line and Center City. .
Kristie Bergey, owner and broker of KB Experience, a Philadelphia real estate firm, says many Philadelphia landlords prefer to book a vacancy rather than take a long-term lease with a small merchant. end.
“The commercial real estate market is clearly slow in many parts of the Philadelphia area,” he says. “But it’s not like landlords are giving their tenants a break,” he added. “They prefer to hold on to properties and wait for the right tenant, such as a well-known restaurateur or chain, to honor that commitment.”
Bergey says many of his clients prefer to lease their venues to more “experience” type establishments such as cafes, gyms or restaurants.
“Hosts have become really picky about what kind of clients they want to try their luck with, especially after what happened,” he says. “They want a tenant doing something you can’t buy on Amazon.”
It has become much more difficult this year for a small business to lease commercial property, or even maintain existing leases. Alignable’s survey found that 45% of small business owners report paying at least 50% more rent than before COVID, 24% reporting double the rent received by landlords, and 12% reporting doubling rent. . We pay three times more now than before the pandemic.
Unfortunately, the city government offers little help to traders facing these difficulties. The city provides loans, training, coaching, marketing and other services to assist businesses in acquiring commercial space, according to a spokesperson for the Philadelphia Department of Commerce. However, the department does not fund small businesses specifically to cover or subsidize rent.
So what’s the best strategy for a small business looking to control rental costs and convince a prospective landlord it’s worth the risk these days when economic growth is slowing and inflation is high?
For starters, both real estate agents say it’s important to do your research so you can truly understand your client base and pick the right location with the right demographic.
Also, be prepared to be completely transparent with your prospective host. Providing historical business information, financial statements, and tax returns are common requests, so the landlord may feel more comfortable that your business will be around for a while.
Be prepared to make a commitment, too, as most landlords typically ask for leases of at least five years. You will want to have reasonable projections of how you can meet the requirements of a rental during this time.
Small businesses should be prepared to negotiate the sharing of possible construction or retrofit costs, which is always on the table as part of any deal. And if a lease is issued, be sure to give yourself enough time to arrange your permits and other permits with local authorities. This way you can set your rental period to start around the time these permits should be obtained.
All these tactics will prepare you to get the best possible commercial lease. But according to both Bergey and Michels, there’s an even better tactic if you can afford it: buy it.
“Sure, the rates are a little higher now, but if you lock yourself up in a mortgage, you still know what your monthly payment will be and that won’t change,” says Michels. “When you buy, you have more control of your costs and can potentially benefit from property appreciation.”
Bergey agrees. “You’re always better off being your own host,” she says.