Source: Institute for Local Self-Reliance
Often overlooked in discussions about affordable housing that hyper focus on the cost of leasing residential space is that the same general law makes leasing commercial space for a small local business even less obtainable. The inevitable result is that wealth is concentrated into fewer hands as local businesses are displaced by chain stores that can afford to eat higher rents and out bid local businesses for prime locations. This is especially noticeable in major commercial hubs where double digit inflation in commercial real-estate happens within a year.
The average annual rent for a 2,000-square-foot store in the U.S. increased 2 percent in 2015, according to the real estate statistics firm Reis, Inc. Start drilling into cities and towns, and the numbers climb faster. In Charleston, for instance, citywide retail rents skyrocketed 26 percent between Feb. 2015 and Feb. 2016;[11] in Cleveland that figure was 12 percent,[12] and in Nashville, 20 percent.[13] Even in smaller communities, like Grand Rapids, Mich., the retail rents are “unprecedented.”[14]
Rackrents (i.e. rents outpacing profit and wage growth) aren’t the only mechanism displacing local businesses. Threats of urban renewal 2.0 and the lending preferences of the fractional reserve banking cartel favor national chain store production to local businesses.
On the supply side, as older buildings—which were generally designed to have small-scale, ground-level retail space—are getting razed for new development, those new projects often don’t replace them, instead containing commercial space that’s larger-format and designed for a national chain. For the real estate developers behind these projects, securing a single large ground-floor tenant makes a project easier. A name-brand tenant is a faster ticket to financing for a project, especially within a banking system that’s increasingly national and international in scope. “The way that projects are financed, they go to a safe way of doing development and they have large tenant spaces that make the banks happy that are lending to them,” says Ken Takahashi, in the Seattle Office of Economic Development.
National chain stores are often offered discounted leases while local businesses pay a higher premium for floor space.
Look at the rents for the kinds of walkable, mixed-use neighborhoods that have traditionally provided the best environment for locally owned businesses, and the numbers jump again. In Louisville, Ky., for instance, the lease rate for big-box retail space was $7.28-per-square-foot at the end of 2015. For “small shop” space, it was $16.68-per-square-foot, a 129 percent premium.
The mitigating factor is having multiple locations so revenue losses in one location can be offset by profits in other locations. Even when local small businesses do have multiple locations it is nowhere near the magnitude of chain stores that span regionally, nationally, and internationally. In the competition for prime real estate, the odds are stacked against local businesses regardless of how successful they are. Shutting down the service sector for several months on end only made the rent burden worse. While Amazon and Big box stores were racking in record profits one- third of small businesses could not pay rent at the end of 2020.