Rising Rent Costs Pose Significant Challenges for U.S. Small Businesses

Rent inflation continues to exert significant pressure on small businesses, according to recent data from the Bank of America Institute. As of May, the average monthly share of rent in total business expenses was 9.1%, a notable increase from the 2019 average of 5.9%. This rise in rent costs is particularly severe in areas like Las Vegas, where the average share of rent more than doubled the national average. Boston also saw an increase, with rent’s share of total expenses rising from around 7% to nearly 8% between May 2023 and May 2024.

Despite some relief from easing wage inflation, the overall financial strain on small businesses remains high. The Bank of America Institute’s analysis, based on data from small businesses automatically paying rent through their accounts, revealed a 12% year-over-year growth in average monthly rent payments in May. This trend closely follows the nonresidential real estate rents component of the Producer Price Index, indicating that the increases are primarily due to inflation rather than businesses upgrading their premises.

Additionally, the inflow-to-outflow ratio, a measure viewed as a proxy for profits, increased in May, reaching its highest level since March 2023. However, this ratio still remains below the levels seen in recent years, suggesting that while there is some improvement, small businesses continue to face substantial financial challenges due to rising rent costs.

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