Delta Variant Threatens Small Businesses as It Slows Return-to-Office Plans

Tens of thousands of downtown small businesses that have been scraping by were eagerly awaiting the week of Labor Day, when many companies expected that their employees would return to the office.

Now, the Covid-19 Delta variant is dashing hopes that workers will be back in large numbers, causing these business owners to scramble again to make rent payments and keep their operations alive.

Some are scaling back staff hours, postponing hiring or making additional cuts so they can hold on. Others say they are ready to shut their doors for good if return-to-work plans fizzle in the coming weeks.

“They were hanging on by their fingernails to get to September,” said

Bob Luz,

chief executive of the Massachusetts Restaurant Association. “We’re greatly concerned they’re not going to make it.”

The survival of corner retail stores, coffee shops and restaurants is being watched closely by office-building owners, who are counting on traditional work patterns to resume as Covid-19 subsides. The success of the work-from-home trend threatens their cash flow and property values.

Arnold Bern,

a business owner and Ukrainian immigrant, is having doubts about the viability of his shoe-repair shop a block from Manhattan’s Grand Central Terminal.

For 21 years, he has relied on suburban commuters to the city. He closed the shop for three months at the start of the pandemic during the lockdown period. The shop’s sales are down 75% since its reopening in June last year, making it too difficult for him to pay his $10,000-a-month rent, he said.

Mr. Bern said he would be able to hang on if business returns to close to what it was and he can renegotiate his rent. But he added that neither looks likely, and he is searching for a new location. “If it stays like this, it’s no good,” he said.

Sales at Mr. Bern’s shoe-repair shop are off 75% since it reopened last year.



Photo:

Parker Eshelman/The Wall Street Journal

Before the full force of the Delta variant hit the U.S., infection rates were declining as more people became vaccinated. With the health risk seemingly easing and more schools planning for in-person learning in September, many companies decided the conditions were right to call back their workforces.

By last month, signs were emerging that more employees were heading back to their office desks. An average of about 35% of the workforce had returned to traditional office space, as of July 21, in the 10 major cities monitored by Kastle Systems, a nationwide security company that monitors access-card swipes. That was up from about 23% in the middle of January.

More recently, though, momentum has stalled. As of Aug. 8, the average return-to-office rate had fallen to 33%, Kastle said. Summer vacations caused part of that decline. But the drop also likely reflects the growing number of businesses delaying return-to-office plans, analysts say.

Big companies such as

Apple Inc.,

Amazon.com Inc.,

Microsoft Corp.

and

Uber Technologies Inc.

have said in recent weeks that they are postponing reopening plans until after September. Many other companies are taking cues from tech leaders.

Mr. Bern doubts his shop’s viability. ‘If it stays like this, it’s no good,’ he says.



Photo:

Parker Eshelman/The Wall Street Journal

“Why rush it,” said

Daniel Ismail,

analyst at Green Street Advisors. “Health issues can be avoided by simply waiting for a more opportune time to return.”

For small-business owners who invested more money in anticipation of a September surge in business, delays can be especially disheartening.

Yehuda Sichel,

the chef-owner of Huda, an artisanal sandwich shop in downtown Philadelphia, said he bought a new grill and refrigerator and is having his kitchen floor redone.

But in recent weeks, a number of big Philadelphia employers delayed return-to-work plans. Mr. Sichel said he is generating enough business to keep going but his recent investments might take longer to pay off than expected. He added that he has postponed plans to hire more staff.

“I’ve been investing in September being this significant boom,” he said. “Now it does not look like it’s going to happen.”

Confidence among small businesses throughout the country dropped in August to its lowest point since early spring, according to a survey for The Wall Street Journal by Vistage Worldwide Inc. The plight of those in central business districts is of special concern to cities, where hundreds of thousands of jobs and millions of dollars of tax revenues depend on them.

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Many of the largest downtown office-building owners, including

Boston Properties Inc.

and

SL Green Realty Corp.

, have been compelled to find new ways to keep tenants viable, such as deals where ailing retailers pay a percentage of their monthly sales in rent rather than a fixed amount to help them survive.

“The coffee shop at the base of your building isn’t there to make bundles of money,” Green Street’s Mr. Ismail said. “It’s there to be an amenity for tenants.”

Small businesses have been trying to find creative ways to bring cash in the door. In San Francisco, the Wayfare Tavern leased a food truck that sold the restaurant’s fried chicken in the city’s neighborhoods.

But Wayfare’s private-events business looks unlikely to rebound this fall as much as previously hoped because some customers are delaying gatherings, according to partner

Tony Marcell.

“I don’t think the surge is going to be nearly as significant as we anticipated,” he said.

Some small-business owners with city locations have found success by opening a second place in the suburbs, where restaurants have fared better during the pandemic.

“People are staying closer to home,” said

Douglass Williams,

the chef and owner of MIDA, a Boston restaurant, who recently opened an outlet in nearby Newton, Mass.

Covid-19’s Delta variant is proliferating world-wide threatening unvaccinated populations and economic recovery. WSJ breaks down events in key countries to explain why Delta spreads faster than previously detected strains. Composite: Sharon Shi

Write to Peter Grant at [email protected]

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