When Michelle Murphy renewed her lease recently for a 5,000-square-foot beauty salon she rents in Cranston, there was some bad news that came with it: her monthly payment to the landlord immediately swelled by $600.
And that came on the heels of receiving a monthly electric bill that had jumped by about 12% to $2,000. The extra expenses were jarring.
“Luckily I’m a good saver, so I’ve been in a position where I can pay my bills,” said Murphy, who owns Roots Hair Salon LLC in Cranston. “But you’re never really getting ahead. It’s month to month.”
Murphy is not alone. Small businesses all over the state – and the country – are struggling under the weight of climbing rents, surging inflation and rising labor costs. In many cases, it’s affecting their ability to pay rent on time.
A recent poll published by Alignable found that 41% of U.S. small-business owners couldn’t make their rent payment in full or on time in November, the highest percentage in the monthly poll in 2022, and an increase of 4 percentage points over last month.
The delinquencies were highest in the beauty sector, where 57% of salons surveyed across the country reported missing rent payments. Education businesses in the private sector had a 46% delinquency rate, while 45% of gyms and transportation businesses were late and 44% of retail stores didn’t make rent.
By comparison, only 20% of manufacturers that are considered small businesses were unable to make rent in November, down 7 percentage points from October.
The findings were part of Alignable’s November Rent Report, which is based on data collected from 6,326 randomly selected small-business owners from Nov. 19 to Nov. 22.
Rhode Island’s neighbor Massachusetts had the third-highest rate of rent delinquency for small businesses in November, at 45%.
But Rhode Island numbers paint a slightly more promising picture. The data, collected from 104 local small businesses, found that about 38% of small businesses couldn’t pay their rent in full or on time in November, compared with the national average of 41%.
Some of the reasons cited for the rent delinquency included ongoing and cumulative inflation, and the increased cost of supplies and labor. Fifty percent of respondents said they are paying more for rent than they did six months ago, compared with the national average of 52%.
Murphy is one of them. At Roots Hair Salon, she rents her space to 28 stylists who have recently increased prices for their clients because of the rising cost of products. Murphy knows everyone is struggling.
“With inflation going up, everything is more,” Murphy said. “I feel like I can’t raise my rent for my staff because it’s hard for everyone right now. But I might have to.”
Not every small business is feeling the pain.
According to Rick Simone, director of the Rhode Island Small Business Coalition, many small businesses in the state are locked in long-term leases, often up to 20 years, which prevent severe rent increases over time. This has been helping some small businesses survive since the COVID-19 pandemic began in 2020.
And landlords themselves tend to be hesitant to increase their prices. For retail space, rents have remained mostly flat over the last few years, says Neil Amper, vice president of Capstone Properties in Providence, which manages dozens of commercial properties in Rhode Island.
“Landlords who have tenants that are struggling or need a little help don’t want to raise the rent to the point they put them out of business,” Amper said. “Because replacing a tenant is not easy to do.”
Depending on the location, finding a replacement tenant can take several months, especially for larger spaces. For other spaces, specifically for warehouse spaces, rents have “gone up substantially” due to demand, Amper said, sometimes even doubling.
“If you’re an office user, your rents have been stable for a long time and they remain stable,” said Michael Giuttari, president of MG Commercial Real Estate Services Inc. in Providence. “If you’re a retailer, your rents have been pretty stable. But on the industrial side, the rents have been consistently going up since the pandemic and by a lot, maybe 50% or 100%.”
Joseph R. Paolino Jr., managing partner of Paolino Properties LP, says many businesses struggled to pay rent at the height of the pandemic, but he says things have been smoothed over since then.
But it’s not just rent increases that many small businesses are struggling with. Most notably, increased costs related to health insurance, liability insurance, and higher electricity and gas bills, Simone said.
“We got hit with all those things at one time because it all happened within 30 days,” Simone said. “The concern is that we didn’t have a lot of time to prepare.”
For Murphy, providing essential products for her salon such as trash bags and cups is becoming more difficult. And her staff has seen the same phenomenon, with prices spiking for products such as hair dye.
“Business owners right now don’t seem to get shell-shocked with increased costs because they’ve been facing it for this whole last year from pandemic-related issues,” Simone said. “But the concern is going into the quieter time of year and not having a lot of time to have prepared for these increases.”
For some small businesses, this can make the difference between staying open and having to shut down.
“A lot of people are going to have to make a lot of hard decisions,” Murphy said. “A lot of people’s dreams will go down the toilet soon. For businesses to keep incurring these detrimental financial hardships, it’s not going to last.”
