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How to Control Your Leasing Costs and Navigate the Rent Crisis


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Gene (00:06):

Hey everybody, this is Gene Marks and welcome to this week’s edition of The Hartford’s Small Biz Ahead podcast. Thanks so much for joining me. This week, let’s talk about your rent. According to a recent survey that was conducted by business networking platform Alignable, approximately 40% of the more than 7,300 small business owners they surveyed said that they couldn’t pay their rent. Unfortunately, that number has grown by about 6% in just the past month. I mean, it’s certainly a ominous sign. Don’t you think? Is the same rent crisis affecting businesses all over the country. The answer is, yeah. I spoke to a bunch of real estate agents around and they’re also reporting that many small businesses are experiencing volatility and some of them are being forced out of their locations as a result. This is everywhere from grocery stores to dry cleaners that are unable to pay their rent for the commercial space that they have.

Gene (01:07):

So it’s definitely a big issue. It’s not as if landlords are giving breaks to their tenants now. They’re holding onto their properties and waiting for the right tenant like a well known restauranteur or a chain to make a commitment. Many landlords nowadays, they prefer to lease their spaces to more experience type establishments like coffee shops or fitness centers or restaurants. Landlords, they’ve become really picky about what kind of clients they’re willing to take their chance on, especially after what has happened during the pandemic. They want a tenant that’s doing something that you just can’t buy on Amazon. So yeah, it’s become much harder this year for a small businesses to rent commercial property or even hold on to their existing leases.

Gene (01:55):

Back to the Alignable study. Alignable found that as much as 45% of small business owners said, they’re paying at least 50% more in rent than they did prior to COVID. 24% are saying that their rent has doubled in the past year. And 12% are saying they’re paying as much as three times more than they paid before the pandemic. It’s a big issue. Now, cities aren’t really providing that much help. Cuz I checked into that as well. Some cities do provide loans or education or coaching or marketing to help businesses and acquire a commercial lease. But very few, if any, are providing any kind of assistance with like funds to cover or subsidize rent. So the question is for you, what do you do as a small business owner to control your leasing costs and these days of slow economic growth and high inflation and convince a prospective landlord even that you’re worth the risk. Right? Well, here’s some advice that I got from some realtors and some of my advice as well that I have for you. First of all, it’s important for you to do…

Gene (02:58):

Your research. You really need to understand your customer base and pick the right location with the right demographics. It’s super important. Remember it’s location, location, location, right? Also you have to be prepared to be fully transparent with a prospective landlord. That means they’re gonna be asking you for historical information, financial statements, tax returns. These are common requests and a landlord’s gonna ask you this so they can feel more comfortable that your business will be around for a while. By the way, be also prepared to commit. Most landlords are gonna be asking for a five year lease on average, is what they want. You’ll wanna prepare some reasonable looking projections that will show how you’ll be able to meet the requirements of a lease during that period. Some other thoughts: be ready to negotiate the sharing of any potential construction or retrofitting costs.

Gene (03:51):

These are always on the table as part of any deal, right? And if you do get a lease, make sure you’re giving yourself enough time to arrange your permits and other clearances with your township or local authorities so that you can time the beginning of your lease term near when those clearances have been received. All of these tactics will prepare you to get the best commercial lease possible, but there is one tactic that really is the best one of them all, if you can afford it. And that’s to buy. It’s a big question as to whether you can afford it or at least afford a down payment, but credit is still available. Interest rates, although mortgage rates have gone up a lot in the past year, there’s still at around 6% as I’m recording this.

Gene (04:34):

And yeah, that’s not an unreasonable number. So it’s a little higher but if you lock yourself into a mortgage, you’ll still know what your monthly payment is gonna be and it’s not gonna change. When you buy, you’re more in control of your costs and you could potentially benefit from the appreciation of your property. So, you’re always better off being your own landlord. That’s the bottom line. So be prepared this year but get ready to negotiate. And hopefully you can put some of these thoughts and tactics and strategies into place to help you get that good lease for the best location for your business. You’ve been listening to Gene Marks. And this is the Small Biz Ahead podcast. If you have any questions or if you need any advice or tips or help in running your business, please visit us at SmallBizAhead.com or SBA.Thehartford.com. Thanks so much for listening guys. I will be back next week with some more thoughts and advice to help you run your business. Take care.

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