The COVID-19 pandemic has dealt small businesses a nonstop parade of debilitating blows.
A new COVID surge is hitting just as the crucial Paycheck Protection Program (PPP) has run out of money. Those small businesses that have managed to survive this past year and a half aren’t sure if they can survive much longer.
But one silver lining has emerged for businesses that rent their locations—commercial real estate has gotten much cheaper during this economic downturn. And that means some small businesses are moving into “dream spots” in better, prime locations in neighborhoods they could never have afforded before.
NPR spoke with the owner of a Mediterranean fast-casual restaurant that had been located on a Brooklyn, New York, residential side street with low foot traffic. But owner Eli Sussman was able to move his restaurant to a new location—the famed midtown Manhattan cultural landmark Rockefeller Center, known for the hit TV shows filmed there, including 30 Rock, Saturday Night Live, and so many more.
“It’s about as night and day as you can get,” Sussman told NPR.
Retail storefront vacancies and a downward spiral in rent prices have allowed some small businesses to move into larger or more modern locations or previously unaffordable neighborhoods. The adage about “location, location, location” still holds true, and this moment may represent a rare chance to grow your business by choosing a better, more desirable spot.
We don’t know exactly how much of a rent break this particular restaurant owner got for his spot at Rockefeller Center. But NPR checked in with the real estate analysis firm CBRE and found that “new leases and lease renewals are down nearly 60% in Manhattan since the early days of the pandemic.” A New York Times report on landlords slashing commercial rents adds that currently, “1/5 of the total market for office space in Manhattan is available for rent.”
The national average for vacancies is only slightly lower. Business data platform Statista ran the numbers for the end of the first quarter of 2021 and found that 16.4% of US office space is currently sitting empty. That’s almost double the 9% vacancy rate from just prior to the pandemic.
And this means lower rents for small businesses. Another national analysis in the Wall Street Journal describes “bargain rates” on rents, citing data from the commercial real estate platform VTS that shows tenants are getting “discounts up to 13% below rent rates reached in the first quarter of 2020.”
That may not change anytime soon. The transition to working from home may be permanent in some regards, so those rental rates may not rebound as quickly as property owners hope. In many large cities, companies are trying to sublease their space at record-high rates. And landlords are offering deals to fill those spaces because they just don’t have many renters interested in moving in.
In the apartment market, residential landlords have been desperately offering “up to 5 months of free rent” to attract potential renters to sign new leases. That’s also happening in the retail and storefront market, as the New York Times reports that commercial landlords are also offering similar deals to attract new tenants and retain their current occupants.
Local governments and community business groups are also offering to cover some rent to help small businesses. In Washington, DC, a business improvement district is also offering to pay months of free rent to help limit the number of commercial vacancies in the area. States like California and New York are offering relief grants to their small businesses that may be behind on rent, further softening the market because small business tenants don’t have to worry about eviction.
There may be more troubling downsides on the near-term horizon. Just as the Centers for Disease Control national eviction moratorium is slated to end soon, several state and local moratoriums protecting small businesses from eviction will end soon too. The storefront vacancy problem could be on the verge of getting much, much worse.
Relocating your business or starting a new business in a desirable location is a pretty big leap of faith that comes with plenty of uncertainty. But a commercial real estate loan can go a long way in eliminating that uncertainty. And there may not be many more moments where economically your small business is in an advantageous place to choose a choice location.