Improving trends in late rent payments by small businesses, as indicated by a recent survey
In the challenging landscape of the COVID-19 pandemic, small retail businesses have faced numerous hurdles, from rent delinquency to inflationary pressures. A JLL report released in February shed light on the struggles of landlords and tenants, with larger retail tenants being less willing to negotiate rent relief or concessions.
The report also highlighted the biggest challenges landlords face with larger tenants, including rising energy costs, increased demands for energy efficiency and sustainability in buildings, and lease negotiations in a market with vacancy issues and economic uncertainties.
Despite these challenges, there have been signs of recovery. According to a survey conducted in April, nearly half (46%) of small businesses reported that their rent was higher than it was six months prior. However, the shift in rent delinquency rates from August to September is considered "encouraging news" by Alignable, suggesting a potential stronger recovery for small businesses if this growth continues into Q4.
In September, rent delinquency rates among small businesses dropped from 40% in August to 30%, the best rate since April, as per the September Rent Report from Alignable. The rent delinquency rate for small retailers also followed a similar trend, falling from 40% in August to 31%.
The recovery is not uniform across all businesses. In July, almost six in 10 small retailers surveyed by Alignable were on the verge of shuttering by the fall. However, 29% of small businesses have recovered from the early COVID-19 pandemic lows and are making "as much if not more" than pre-COVID, offering a glimmer of hope.
Inflation, higher interest rates, gas prices, rent hikes, supply chain issues, and other factors have been cited by small retailers as reasons why their businesses were near their breaking point. In September, 59% of small businesses reported charging more for their goods and services to account for inflationary pressures and cover expenses.
Unfortunately, the struggle is not exclusive to small retailers. Major retailers have also faced financial difficulties. In November 2020, CBL and PREIT both filed for bankruptcy as retailers grappled with making rent payments.
The SNL U.S. REIT Retail Shopping Center Index was down 26.9% in 2020 at the start of the COVID-19 pandemic, reflecting the broader impact on the retail sector.
As we move forward, it is clear that small retail businesses will continue to face challenges. However, the encouraging signs of recovery in rent delinquency rates offer a glimmer of hope for a stronger recovery in the coming months.
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