Here’s what Philly small businesses need to know about leasing

According to a recent survey conducted by business networking platform Alignable, about 40% of the more than 7,300 small business owners surveyed said they couldn’t pay their rent in the past month. Unfortunately, that number had increased by about 6% since July alone.

Businesses surveyed cited a combination of factors, including rent increases and higher costs of supplies and labor.

For owners on the other side of the equation, “they feel like they’re letting go [rent] it slipped for a year and a half and did what it could” during the pandemic, Chuck Casto, head of research and communications at Alignable, said in an interview with CNBC last month. But landlords have mortgages and need tenants to pay, he said.

It is definitely an ominous sign. Is the same rent crisis hitting small businesses in the Philadelphia area? I spoke with two commercial real estate agents in town who both represent hundreds of small businesses and merchants. Both agreed there is a lot of volatility in their markets, forcing some small businesses out of business.

“A dry cleaner I know in Lower Merion was evicted from their property recently because they couldn’t pay their rent,” says Damon Michels, a real estate agent with Keller Williams who specializes in residential and commercial real estate on both the Main Line and Center City . .

Kristie Bergey, broker and owner of KB Experience, a real estate firm in Philadelphia, says that in Philadelphia many landlords prefer to keep a vacant space rather than have a long lease with a small merchant who may not succeed. end.

“The commercial real estate market is clearly slow in many parts of the Philadelphia area,” he says. “But it’s not like landlords are giving their tenants breaks,” he added. “They prefer to hold the properties and wait for the right tenant — like a big-name restaurateur or chain — to make that commitment.”

Bergey says many of her clients prefer to rent their spaces to “experience”-type businesses, such as coffee shops, gyms or restaurants.

“Landlords have become very selective about the kind of customers they’re willing to take a chance on, especially after what’s happened,” he says. “They want a tenant to do something that you can’t just buy on Amazon.”

It’s much harder this year for a small business to lease commercial real estate — or even keep existing leases. Alignable’s research found that 45% of small business owners say they are paying at least 50% more in rent than before COVID, with 24% reporting their landlords have doubled their rent and 12% saying that they pay more than three times more now than they did before the pandemic.

Unfortunately, the city government offers little help to traders facing these challenges. According to a spokesperson for the Philadelphia Department of Commerce, the city provides loans, training, mentoring, marketing and other services to help businesses acquire commercial space. However, the department does not provide small businesses with funds specifically to cover or subsidize rent.

So what’s the best strategy for a small business looking to control leasing costs in these days of slow economic growth and high inflation – and convince a prospective landlord that they’re worth the risk?

For starters, both brokers say, it’s important to do your research so you can really understand your customer base and pick the right location with the right demographic.

Also, be prepared to be completely transparent with your prospective landlord. Providing historical operating information, financial statements and tax returns are common requests so the owner can feel more comfortable that your business will be around for a while.

Be prepared to commit, too, as most landlords generally ask for minimum five-year leases. You will want to have reasonable projections that show how you will be able to meet the demands of a lease during this period.

Small businesses should also be prepared to negotiate the sharing of any potential construction or retrofit costs, which are always on the table as part of any deal. And if a lease is granted, make sure you give yourself enough time to arrange your permits and other approvals with the local authorities. This way you can time the lease to start around when these clearances should be received.

All of these tactics will set you up to get the best possible commercial lease. But according to Bergey and Michels, there’s an even better tactic if you can afford it: buy.

“Sure, interest rates are a little higher now, but if you commit to a mortgage, you still know what your monthly payment is going to be, and it’s not going to change,” Michels says. “When you buy, you have more control over your costs and can potentially take advantage of the property’s appreciation.”

Bergey agrees. “It’s always better to own yourself,” he says.

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