Rent inflation remains a major challenge for small businesses, as indicated by recent data from the Bank of America Institute. The average monthly portion of rent in overall payments has risen to 9.1% through May, a significant increase from the 2019 average of 5.9%. Certain regions in the country are facing particularly high rent expenses.
For instance, in Las Vegas, the average rent share in May exceeded the national average by more than double. Nonetheless, there is a slight silver lining, as moderating wage inflation has brought some relief to small businesses.
According to the Bank of America Institute, total nonfarm payroll growth remains most robust in the South, with payroll expenditures in cities such as Charlotte and Tampa surpassing 30% compared to 2019.
Rent pressures on small businesses
To determine rent share, Bank of America examined internal data from small businesses that automatically pay rent through their Bank of America accounts.
The average monthly rent payment growth per small business client rose by 12% year-over-year in May. This uptick closely aligns with the nonresidential real estate rents component of the Producer Price Index, indicating that the increase is primarily due to inflation rather than businesses opting for larger or higher-quality spaces. Despite the difficulties, there is a glimmer of optimism.
The inflow-to-outflow ratio, considered a proxy for profits by the Bank of America Institute, saw an increase in May, reaching its highest level since March 2023. Nevertheless, the ratio still generally remains lower than in recent years. As small businesses strive to navigate the challenges posed by rent inflation, it remains to be seen how they will adapt and surmount these obstacles in the months and years ahead.
