Tough Times: New '23 Rent Delinquency Record Reached: 41% Couldn't Pay In November

RENT REPORT | DATA INSIGHTS | BOSTON, MA -- November 30, 2023: Despite some stabilizing economic trends reported by the federal government, the financial picture for many small businesses is far from rosy, as they're confronted with increasing challenges around revenue generation, managing still-high interest rates, cumulative inflation, and rent spikes.

In fact, Alignable’s November Rent Report, released today, shows that the rent delinquency rate among small business owners across the U.S. has reached a new 2023 high: 41% could not afford to pay their rent in full and on time this month. This follows two consecutive months of a 40% rate in October and September. 

These findings and others in the November Rent Report are based on responses from 3,767 randomly selected small business owners surveyed from 11/2/23 to 11/29/23, as well as input from 48,000+ other respondents over the past year. 

2023's Progression Of Rent Delinquency Rates 

The chart below maps how rent delinquency rates have changed over the year. It shows a dramatic jump of 11 percentage points from January to November, reflecting the increasing number of small business owners experiencing significant financial trouble over the year.  

Alignable's Rent Report has become a widely used barometer among influencers watching small businesses' economic health closely -- and it's sure to sound some alarms this month.  

That's because if small businesses can't pay a basic cost like their rent -- what else are they unable to afford? These concerns naturally lead to worries about how long these entrepreneurs will be able to stay in business.

Minorities Are Struggling More Than Other Groups

As the second chart demonstrates below, minority-owned small businesses are having an even harder time than their peers in November, as 61% couldn't afford their rent. 

This sad statistic also represents a major surge between October and November, up 12 percentage points from 49% to 61% -- the highest rent delinquency rate in at least six months. 

The situation is even more striking when you consider the delinquency rates for other demographic groups in November:

• Nonminority-owned: 41% (up two percentage points from Oct.)
• Women-owned: 38% (down three percentage points), and
  
• Veteran-owned firms: 35% (up nine percentage points from last month).

So, the delinquency rate for minority-owned companies is 20 percentage points higher than the average for nonminority business owners. 

That's a very disturbing difference that we'll need to watch carefully in December, suggesting that much more needs to be done among consumers and the federal government to support minority-owned firms in the coming months. 

Economic Backslide Explains Rent Delinquency High

Supporting data from the November Rent Report highlights increasing problems faced by small businesses, making it harder than it has been all year to pay the rent in full and on time. 

These are issues that major corporations can combat through their much more plentiful resources, including huge marketing, advertising, and social media budgets.

Here are just a few related statistics illustrating the true State of Small Business this month:

• Rent Spikes On The Rise: 55% say they're contending with higher rent requirements now than they had six months ago. And that figure is up five percentage points from October, when it was 50%.  Beyond that, 15% are being charged more than 20% more in rent.
  
• Reduced Revenues: 58% of SMB owners said they expect to make less money in Q4 2023 than they did this quarter last year. In fact, that number is up six percentage points from October's prediction of 52%.
• Interest Rates Take A Greater Toll:  58% say that current interest rates are hurting them -- cutting into their margins, reducing consumer spending as their customers have less money, and making it harder to pay off loans or secure new ones. This figure continues to get worse as the months pass by -- it was three percentage points lower in October at 55%, and eight percentage points lower in September.
  
• Preventing A Recovery: 49% also speculated that until interest rates are lowered by at least three points, they will not be able to start bouncing back economically. This figure was 11 percentage points higher than what it was in October at just 38%. 
• No Relief From Inflation Rate Easing: 59% said they're still fighting back against cumulative inflation, even if the inflation rate is lower. And 40% noted that inflation is still significantly impacting their businesses. Several added in comments that though the inflation rate has cooled, that doesn't mean prices aren't still sky-high for necessities, supplies, and more. Those added expenses have to be passed onto customers for small businesses to survive, and some customers won't pay those higher prices.
• More Consumers Are Spending With Online Behemoths: 49% of independent, Main Street retailers said consumer spending is down in November compared to October when only 39% noticed a shift in the wrong direction. Many commented that global online shopping sites are hurting their businesses. One retailer put it this way: "The ease and convenience of shopping on Amazon with deliveries every day and free shipping is killing small businesses & quality products. Small businesses can't compete with Internet pricing and shipping."

To further illustrate the toll 2023's economy is taking on small businesses, only 31% of pre-COVID businesses have fully recovered financially from the pandemic era -- down six percentage points from October when 37% said they had fully recovered.

The 31% figure also means that 69% of SMBs are still striving to make up for time and money they lost due to COVID, inflationary pressures, high interest rates, and more.

Car Dealers, Beauty Salons, Realtors & Retailers Struggle

Examining the rent delinquency landscape in terms of industries, there are a few sectors that showed some degree of recovery, while others reflected the economic backslide suggested by the national rent numbers. The charts below will reveal what's really happening with these shifts.

Let's start with the sectors suffering the most this month:

• Small businesses in the automotive sector -- car dealers and repair shop owners -- top the list of SMBs feeling the pain of high interest rates, inflation, increased supply costs, and more. Some 55% couldn't afford their rent, up 19 percentage points from just 36% in October. Many noted that it's harder to sell big ticket items like new cars with interest rates so high, and discretionary income dropping.
• Not far behind, it's evident that 54% of beauty salons -- highly affected during COVID -- are having financial troubles, too. Whether consumers are visiting salons less often because of the economy, or salon owners are having more trouble paying back SBA loans, several issues have been reported by salon owners we polled. 
  
• 45% of real estate firm owners also said they had trouble paying November rent -- this is a steady trend up five percentage points from October and 10 percentage points from September. In all cases, realtors commented that still-high interest rates are standing in the way of many home sales. This is a record high spanning at least the past year for realtors. When a high percentage of realtors can't pay their rent, that's representative of more profound economic issues.
• While retailers have had some improvement over the past few months in their rent delinquency, partially due to holiday sales they've been able to secure, they remain high on the delinquency list, coming in with a rate of 42%. That rate is down two percentage points from October, and five since September. But it's still a high number worthy of concern. It's also a reminder that consumers need to shop locally as much as possible to keep their merchants from closing their stores. 

Finally, A Bit Of Good News Looking At Some Sectors

Now for the good -- or better -- news. Several industries saw a drop in their delinquency rates, including:

• Restaurants -- Now at 35%, down from 40% in October. This is the lowest rate since March, which is encouraging.
• Transportation -- Now also at 35%, down from 45% in October. (Lower gas prices were cited among reasons for this shift). 
• Construction -- 31% in November, down from 43% in October.
• Science/Technology -- 30% now, down from 54% in October. 
• Gyms -- 28% now, down from 50% last month. 
• Musicians/Artists -- 25% down from 37%.
• Travel/Lodging -- 24% down from 38%. (More people are traveling as gas prices are down). 
• Manufacturing -- 15% down from 50%. This is, perhaps, the most encouraging trend here, but let's watch what happens in December, as this could be a blip.

While these developments are shifts in the right direction, some of the numbers -- 25% and higher -- are still quite disturbing as delinquency rates.

Rent Troubles Increase For NY, OH, AZ, WA, MI, NJ, & CA

Looking at the states' charts, you can see how tumultuous the rent story has become over the past couple of months. 

Right now, the Top 10 States with SMBs struggling to pay the rent are:

1. New York at a rate of 51%, jumping 22 percentage points. 
2. Ohio at 50%, up 26 percentage points (the largest increase in November)
3. Arizona at 50%, up 23 percentage points
4. Illinois at 47%, down seven percentage points. (This is a nice improvement, but the overall number is still quite high).
5. North Carolina at 40%, up 11 percentage points
6. Texas at 40%, down nine percentage points. (Again, it's a shift in the right direction, but that 40% delinquency number is still quite high).
7. Washington State at 39%, up 12 percentage points.
8. California at 36%, up 11 percentage points.
9. New Jersey at 33%, up 13 percentage points.
10. Maryland at 33% (no change from October)

 
Delinquency Rates Improve In VA, FL, PA, CO & MA

The best news in this report comes from a handful of states that are showing some degree of economic improvement among small businesses. 

• Massachusetts tops the list with only 21% of SMB owners reporting they can't pay November rent, an improvement of 27 percentage points from October. That's a big, very positive shift.
• Colorado is next with only 26% of SMBs unable to pay the rent. That's a drop of 14 percentage points from 40%, which was very significant last month.
• Pennsylvania has a delinquency rate of 27%, down 10 percentage points from October.
• Florida is at 27%, down 18 percentage points from 45%, and 
• Virginia is at 28%, down 22 percentage points from October's rate of 50%. 

Let's hope these rates hold or get even better in December. We'll see once our next poll is complete.

To see more detailed findings from Alignable's November Rent Report covering other industries, states, provinces, or demographic groups, please contact me at chuck@alignable.com.

To review past poll results, go here or to the Alignable Research Center.

About The Alignable Research Center

Alignable is the largest online referral network for small businesses with 8 million+ members across North America.

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.