Walk the tenant roster of almost any neighborhood retail strip or mixed-use block in America and you're essentially looking at a census of small business America — the insurance agency, the nail salon, the HVAC contractor who subleases a back office. These are the tenants that fill space and pay rent. And right now, a lot of them are hurting.
The New York Times has reported that the U.S. economy has been leaving small businesses behind, and the numbers coming in from multiple sources are hard to argue with. According to the Small Business Administration, these types of companies made up 99.9% of all U.S. businesses in 2023 and were responsible for 55% of job creation, per the Census Bureau. That's not a niche sector — it's the tenant base.
The year had a decent enough start. Interest rates were easing, some useful tax provisions were taking effect and the tariff situation looked like it might finally stabilize. That didn't last.
The war in Iran changed the cost equation fast and by April its ripple effects had reached the construction side of commercial real estate, with construction costs spiking sharply. For investors already watching cap rate compression and financing costs, it was another unwelcome variable.
On the operating side, the stress is showing up in concrete data. The Bank of America Institute's Small Business Checkpoint for May 2026 found that small business profitability dropped 1.3% year-over-year in April — the worst reading in two years. Gasoline spending per client jumped 31% year-over-year, which is the kind of number that doesn't just pinch margins; it reshapes how small operators make decisions about rent, staffing and whether to renew a lease.
The National Federation of Independent Business painted a similar picture. Its Small Business Optimism Index slipped 0.6 points in May to 95.3, falling below the 52-year historical average of 98.0. The uncertainty index hit 91 — a long way above the historic average of 68. Inflation was named the single most important problem for the third month in a row, with 18% of business owners putting it at the top of their list, up two points from April and the highest reading since December 2024.
The employment index barely moved between April and May. These are not the conditions under which tenants sign expansions or take on additional square footage.
Bruce Jovaag runs Norse Construction, a home remodeling company in Fenton, Missouri.
"It has been an incredible challenge for a small mom-and-pop operation to just simply keep the doors open," he told the Times.
"It has been a fight like has never existed before." Last year, his sales fell about 25%. A $3,000 tax refund this spring helped — but it didn't come close to covering the $10,000 he pulled from personal savings just to keep the lights on.
There's also a bankruptcy signal worth watching. Edith Hotchkiss, a finance professor at Boston College, told the Times that small business bankruptcy filings rose last year in a pattern tied directly to tariff increases, with filings for businesses carrying less than $50,000 in liabilities climbing two to four months after new import duties were imposed.
That lag is important. The financial damage accumulating right now on small businesses' balance sheets may not show up as lease defaults and vacancies until late this year or into next.
Holly Wade, executive director of the NFIB's research center, put it plainly to the Times: higher costs and especially growing energy prices were "definitely the problem that we're hearing most about right now." For CRE investors trying to read ahead on tenant retention and rent roll stability, that's not background noise — it's the story.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.