Small Biz Tip of the Month: 3 Ways to Mitigate the Rising Cost of Commercial Rent

Small Biz Tip of the Month: 3 Ways to Mitigate the Rising Cost of Commercial Rent

By Alex Gladu, Independent We Stand

There’s no place more suitable for small businesses than Main Street. Yet, increasingly, local brick-and-mortars are being squeezed out of their downtown locations, as the rising cost of commercial rent becomes unbearable. It’s a complex problem that could be affecting a majority of small business owners, but a combination of changes to public policy and business practices could bring these business owners some much-needed relief.

Soaring rent prices affect both residential and commercial renters, but it’s the commercial cost that’s changing the way Main Street does business. The issue is most apparent in major cities, where many businesses big and small clamor for limited space. Last year, commercial rent in San Francisco hit an all-time high, reaching an average of $66.71 per square foot. According to Forbes, seven American cities, including San Francisco, rank among the world’s 20 most expensive commercial real estate markets. In addition to the bay area, those cities are New York, Washington, D.C., Boston, Los Angeles, Chicago and Houston.

The increasing cost of commercial rent poses a bit of a catch-22 for small businesses and their communities: Small businesses bring more economic opportunities and diversity to Main Street, but the current economic climate makes it hard for them to afford the Main Street location. As a result, the community’s economy, workforce and culture suffer.

The Institute for Local Self-Reliance (ILSR) recently shed some insight on just how far that catch-22 has spread amongst local business owners. According to ILSR’s 2016 Independent Business Survey, 59 percent of independent retailers reported being worried about the rising cost of rent. A quarter of independent retailers described commercial rents as a top concern. Those small business owners may not find relief in the commercial real estate market, but they can cut costs in other ways and advocate for a better system.

Find a New Workspace

It may seem counter-intuitive to uproot your business in the midst of record-breaking rent hikes, but more and more cities have alternative work environments for small businesses. For example, incubator spaces give small businesses and start-ups a place to work, meet and grow, with amenities and financial terms specifically designed to promote small businesses. There’s Local Works in Charleston, South Carolina, and TechTown Detroit in Michigan, plus a collection of incubators in other cities across the country.

Incubators aren’t for every small business, but for those that can use them, they are a powerful alternative to the rising cost of commercial rents. Aside from incubators, small business owners may seek to avoid paying skyrocketing rent by allowing employees to work remotely or by deducting the full cost of renting a space on their taxes.

Deduct, Deduct, Deduct

It’s not just the full cost of rent that’s deductible. Small business owners should familiarize themselves with all the tax credits and deductions available to them. For instance, Section 179 of the tax code allows small business owners to deduct the full purchase price of qualifying business equipment, up to $500,000. This includes the cost of new machinery, company vehicles and other materials. There are many other deductions and credits available to small businesses, but it’s important to consult a certified tax professional to know exactly what to claim.

Advocate for Policy Change

In its report, ILSR put forth several ideas that business owners and policymakers have proposed to lessen the burden of rent. One such idea is to create programs that help business owners purchase their office spaces. Few independent retailers own their store space, but those that do often have an easier time staying put on Main Street.

Several other ideas for change point to the need for cities to set aside space for small business development. Whether it’s zoning policies that favor small businesses or requirements that developers sign small business renters, these measures would ease the burden on small businesses and drive economic growth and job creation throughout the city. As a small business owner, it’s important to know that these strategies exist and to seek out opportunities to advocate for them.

The rising cost of commercial rent could threaten the vibrancy and resiliency that locally owned small businesses bring to Main Street and their surrounding communities. It could take a concerted effort from business owners themselves, local residents and like-minded policymakers to change the market, but the resulting small business growth would undoubtedly lead to job creation and economic development.

Independent We Stand is dedicated to helping independent businesses across the country engage their communities and encouraging customers to buy local. If you’re a business owner, get buy local resources, tips and news by registering for a business membership. Your business will also be included in our ‘locals only’ search engine and mobile app. If you’re a consumer, take the pledge to buy local to join the movement.

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