US Small Business Tenants Face Profit Pressures in 2026

Economic Headwinds Squeeze Small Businesses

Small businesses aren’t just an economic footnote—they are the backbone of American retail and mixed-use tenancy. According to Globe St, these tenants fill most neighborhood strip centers and contribute 55% of US job creation, per the Census Bureau. But 2026 has delivered a tough hand. While the year began with optimism over lower interest rates and stabilized tariffs, that stability was short-lived. By April, geopolitical turmoil—specifically the war in Iran—had sent a new round of cost pressures rippling through the economy, landing hard on the small operators that keep local CRE running. For commercial landlords, these shifts mean more risk at the base of the rent roll.

Data from the Small Business Administration highlighted that small businesses accounted for 99.9% of US businesses in 2023. This is a sector with an outsized influence on everything from retail foot traffic to secondary office demand. When pressures mount for these companies, the repercussions are widely felt across CRE markets.

Operating Margins Erode as Costs Climb

This year’s challenges are cutting directly into profitability for small business tenants. The Bank of America Institute’s Small Business Checkpoint showed a 1.3% annual drop in profitability in April, the largest negative reading in two years. Higher gasoline spending—up 31% per client from the prior year—is a prime culprit, putting new stresses on budgets already stretched by rising labor and insurance costs. Meanwhile, the National Federation of Independent Business (NFIB) found its Optimism Index fell to 95.3 in May, well below the 52-year average of 98.0, with its uncertainty index reaching 91. Inflation remains the top concern, cited by 18% of owners, the highest since December 2024. For small business tenants considering lease renewals or expansions, these figures signal rough terrain ahead.

Sentiment and Filings Signal Market Stress

Amid tightening margins, small business owners are already making tough calls. According to the NFIB, owners are holding back on new hiring and growth, and bankruptcies are ticking up after tariff increases. Edith Hotchkiss of Boston College told The New York Times that bankruptcy filings among firms with under $50,000 in liabilities surged two to four months after new import duties. That lag is critical for CRE stakeholders, as rent defaults and space turnover often trail the initial economic shocks. On the anecdotal side, small operators like Norse Construction in Missouri are tapping personal savings to handle swings in demand and cost—an unsustainable strategy in the long run.

Why It Matters

Small businesses play an outsized role in filling and stabilizing retail and mixed-use real estate: they lease the spaces investors spend millions to finance and develop. Per the Census Bureau, they’re responsible for more than half of all new jobs nationwide and virtually all net job growth outside major corporate expansions. The immediate challenge is that energy inflation, higher construction costs, and weaker consumer demand are all compressing operating margins for these tenants at the same time. Similar cost pressures have already weighed on other property sectors, where rising expenses continue to erode profitability despite steady demand. Bank of America Institute’s latest report highlights a multi-year low in profitability. Meanwhile, the NFIB’s dip in optimism suggests owners are far less likely to take on new leases, expand, or even renew under the same terms.

The broader implication is significant. For owners and lenders, small business financial health directly connects to rent collections, tenant retention, and ultimately the performance of retail and mixed-use centers. With bankruptcy filings on an upswing after tariff actions and many business owners draining personal resources, signs point to a coming period of elevated default risk. For CRE asset managers, the next few quarters may reveal whether the financial stress currently building on balance sheets crystallizes into higher vacancies or lease modifications, putting pressure on valuations.

What’s Next

CRE investors and property managers should closely monitor indicators like bankruptcy filings and the NFIB Optimism Index through late 2026 and into 2027. As the financial strain from inflation and rising operating costs persists, lease defaults and vacancies from small business tenants may climb, with a lag effect likely to surface over the next two to three quarters. Owners may need to revisit renewal strategies, offer concessions, or rethink tenant mix to cushion against further attrition. If the macroeconomic backdrop doesn’t improve—particularly energy prices and construction input costs—expect risk metrics for small-tenant retail and mixed-use properties to rise accordingly.