Most independent restaurants are paying more for rent versus six months ago

April came in like a lamb for the restaurant industry, with sales materially softening and more consumers actively seeking deals. The month also presented a struggle for independent restaurants, with 49% of small restaurant businesses unable to pay the rent – a 15% jump from the month prior.

April, however, may have been a bit anomalous. New data from Alignable shows a 5% improvement in rate delinquencies in May, to 44%. Still, that number remains higher than not just March, but also February (40%) and January (38%) and continues to illustrate that the macroeconomic environment remains very much a challenge for mom-and-pop establishments.

That is also the case for small businesses overall; 37% were unable to pay the rent in May, led by the lodging/travel and retail sectors. Driving much of this struggle is higher rent prices; 54% of small business owners say they’re paying more for rent now than they did six months ago, which is a new record for this data, collected from about 4,500 respondents by Alignable every month since the beginning of the pandemic. What’s more, 14% of small businesses say their rent has jumped by over 20% since December.

These increases come as operators continue to navigate stubbornly high inflation and labor costs, increasing interest rates and growing recessionary fears.

Some operators are feeling more pressure than others based on their market. In May, for instance, 52% of Illinois small businesses couldn’t pay the rent, while 48% of New York’s small businesses were delinquent. Minnesota and California SMBs also experienced sharp increases in delinquencies from April.

Further, minority-owned businesses fared worse in May than other demographics and experienced their most significant surge in delinquency so far in 2023, jumping 9% from April to May, to 57%. Minorities polled for Alignable said they are having a hard time with rising interest rates and cash reserves. Thirty-seven percent of minority business owners said they’re “highly concerned” increasing interest rates have hurt their business, versus 25% across all demographics.

These rent trends come as the U.S. Chamber of Commerce notes that high inflation is “beating down small businesses.” Fifty-four percent of small business owners cite inflation as their top concern, according to the chamber’s Small Business Index, which dropped over 2 points in Q1 – to 60.0 – from 62.1 in Q4.

Still, as seems to be a recurring theme, the current environment and outlook seem to be mixed. Despite continued “beat-down” inflation and rent delinquencies and rent spikes, 76% of small business owners say they are confident their business could withstand an economic downturn. According to a new Bank of America Survey, 65% of business owners anticipate revenue growth in the next 12 months even though 72% say they are concerned about a potential recession.

“While the dual pressures of inflation and supply chain disruptions continue to incumber operations, small business owners remain bullish about their prospects for the year ahead,” Sharon Miller, resident of Small Business and head of Specialty Banking and Lending at Bank of America, said in a statement. “Small businesses are poised for growth, implementing strategies to retain and attract talent and exploring new tools including artificial intelligence to gain an edge in a highly competitive market.”

Contact Alicia Kelso at [email protected]