AUSTIN (KXAN)– New data shows that Texas ranks second in the country when it comes to rent delinquency for small businesses, second only to New York, according to a survey from Alignable.
Alignable calls itself the largest online referral network for small businesses.
Forty-five percent of Texas businesses surveyed said they were delinquent on rent in December. That’s up 2% from November and up 22% from last December.
In New York, 55% of businesses surveyed said they were delinquent.
Alignable said it’s not just higher rents, but other economic pressures that are squeezing these businesses, like higher-than-usual inflation and lower consumer spending.
Restaurants lead the rent delinquency pack with 52% of owners– a record for 2022– saying they couldn’t make the December rent in full and on time, up 10 percentage points over November, according to Alignable. Comparatively, December 2021’s rent delinquency rate was 35%, the company said.
“I think most everyone knows at this point inflation, supply chain disruptions have created historic price increases on everything,” said Kelsey Erickson Streufert, spokesperson for the Texas Restaurant Association.
She also pointed to rising utility and labor costs.
Streufert said there’s another factor that’s making it especially difficult for Austin restaurants: Austin’s retail rent per square foot is up 8.41% year-over-year, according to the Texas Real Estate Research Center at Texas A&M University.
“That was far and away the highest increase looking at our four major metros, DFW, San Antonio, and Houston,” Streufert said.
She said during the pandemic, there was a decline in commercial real estate builds, but people were still moving here.
“We’re in a hole in terms of construction and commercial real estate availability. So that once again, is driving costs up,” Streufert explained.
Rent has also increased for Simon Madera, owner of Taco Flats, along with everything else.
“Trying to keep up with all the rising cost of everything… The pivot is real,” he said.
That includes a roughly 10% increase in labor costs, Madera said.
“We offer health care… PTO and a little bit more of a… general employee benefit package,” he said.
One of many things that have changed since Taco Flats’ first Austin run back in the ’70s, and since Madera revived it in 2014.
Madera said the business is seeing things like glass bottle and lime shortages.
“We used to eat the cost of… the lime shortage. Now it’s a little bit tougher, because we have these other offsets that we have to cover,” he said. “Balancing out your supply chain and balancing out your your cost of goods kind of becomes… a little bit of a Tetris game.”
Streufert said Austin restaurants are pivoting, streamlining their menus or maybe reducing their hours.
“You’re going to see more ghost kitchens, more delivery concepts, more catering concepts… Things that are a little less reliant on a commercial lease space. We’re also seeing shared kitchen spaces,” Streufert explained.
All the pressures forced Fat City Stacks to recently close, said owner Eric Silverstein, who also owns Bar Peached and The Peached Tortilla.
“Our rent certainly wasn’t going down and it was one of many factors,” he said.
Silverstein said the biggest factors for closing the restaurant was inflation, due to the cost of goods that kept going up every week, and the weather, as it was an outdoor business.
He also said property taxes went up again and that was another factor behind their closing.
Neither Silverstein nor Madera are delinquent on rent.
Madera said he’s managing but on slimmer margins– even with sometimes adjusting menu prices.
“We had 20-25% cost. Now, if that kind of jumps into a 28-30%, we might eat it. But if it jumps up into a 35-40%, we’ll raise the price,” he said.
But he doesn’t plan to end Taco Flats’ second Austin run any time soon.
“We’re too rooted,” he said. “There are still people coming here and there’s still opportunity, and we just have to find how we pivot through the changes of… increased rent and labor and such.”
Streufert is hoping some relief is in sight. She said the TRA is talking to lawmakers in this new legislative session about property tax relief for small businesses using some of the state’s budget surplus.
She said they also hope to work with Austin’s new mayor, Kirk Watson, on how to save some of the city’s historic small businesses.