Small Businesses Face Higher Rents as Retail Space Availability Drops

Retail space availability is reportedly near record lows, giving national chains an advantage over small businesses in securing space as rents rise.

Nearly 60% of small businesses said their rent rose in the last six months, The Wall Street Journal (WSJ) reported Monday (Oct. 21), citing data from business networking platform Alignable.

Growing demand from national chains and a slowdown in the construction of new retail real estate have boosted competition for locations after a year-long drop in demand that followed the onset of the pandemic, according to the report.

While many property owners prefer to rent to independent businesses that have strong local followings and differentiate them from online retailers, they also see that national tenants can pay higher rents and boost the value of their properties, the report said.

Simon Property Group, a real estate investment trust focused on shopping, dining, entertainment and mixed-use destinations, said in August that it saw increases in leasing volumes, occupancy, shopper traffic and retail sales volume during the second quarter, PYMNTS reported in August.

In its U.S. malls and premium outlets, occupancy stood at 95.6% on June 30.

“We have a number of retailers that are in really good financial standing, and I think they take a longer view, just like we do,” David Simon, chairman, CEO and president of Simon Property Group, said Aug. 5 during the company’s quarterly earnings call. “Not everyone, but I would tell you the majority of who we’re doing new business with is definitely taking a longer-term view.”

It was reported in June that retail landlords were finding themselves with soaring demand for space as construction declined and underperforming stores vacated.

This trend has been helped in part by malls offering on-site experiences that give consumers a reason to visit physical mall locations and that drive foot traffic to all retailers in the mall.

Because of this shift, “there’s not as much redundancy from tenants, and landlords are creating much more robust tenant mixes,” Barrie Scardina, president of Americas retail services, agency leasing and alliances for Cushman & Wakefield, told The New York Times in June.