Rent inflation continues to be a significant pressure point for small businesses, according to new data from the Bank of America Institute. The average monthly share of rent in total payments through May is 9.1%, a notable increase from the 2019 average of 5.9%. Some areas of the country are experiencing particularly high rent costs.
In Las Vegas, for example, the average share of rent in May was more than double the national average. However, there is a small silver lining. Easing wage inflation has provided some relief to small businesses.
The Bank of America Institute found that total nonfarm payroll growth remains strongest in the South, with payroll payments in cities like Charlotte and Tampa over 30% higher than in 2019.
Rent costs squeeze small businesses
To calculate rent share, Bank of America analyzed internal data from small businesses that automatically pay rent out of their Bank of America accounts.
The average monthly rent payment growth per small business client was up 12% year-over-year in May. This increase closely tracks the nonresidential real estate rents component of the Producer Price Index, suggesting that the rise is largely due to inflation rather than businesses opting for larger or better spaces. Despite the challenges, there is a glimmer of hope.
A metric called the inflow-to-outflow ratio, which the Bank of America Institute views as a proxy for profits, rose in May, reaching its highest level since March 2023. However, the ratio still remains on average lower than in the past few years. As small businesses continue to navigate the pressures of rent inflation, it remains to be seen how they will adapt and overcome these challenges in the coming months and years.
