When Taylor Winzeler moved his online fishing gear apparel and custom artwork business to a brick-and-mortar storefront in Houston, it was the realization of a long-held dream.

But just a year later, Winzeler is giving up the lease for his Laguna Madre Clothing Co., finding that sales aren’t nearly enough to cover overhead costs.

“I get emotional talking about this just because at the beginning it was such a celebration for me, such a milestone and something I really, really worked towards and something that I really thought was going to work,” Winzeler said. 

“[It’s] a complete 180 from the excitement and the buildup and the nerves going in and feeling like I’m sort of on top of the world … to now facing the reality of ‘I’m having to close this down. This is not working.’”

Rising taxes, inflation and spiraling insurance are bringing pain to a growing number of independent retailers. But it is dizzying rent increases that are putting the final kibosh on more small retailers as strong demand and limited supply growth have landlords holding every card.

Courtesy of Taylor Winzeler

Taylor Winzeler at Laguna Madre’s storefront in Houston

High demand and minimal new construction have driven up retail rents all over and for all retailers, according to JLL, most especially in the Sun Belt. JLL reported in February that rents for all retailers rose 6.7% in Phoenix from 2024 to 2025, 4.8% in Las Vegas and more than 4% in Charlotte, Orlando, Florida, and Dallas.

But increases are hitting small retailers hardest. Bank of America internal data through August showed that rent payments per small business client had increased 11% nationally year-over-year, with increases of up to 25% in the South.

About 67% of small-business owners are struggling with revenue shortfalls, 48% have seen rent increases, and 39% were unable to pay their rent in full and on time in January, according to Alignable’s latest Small Business Revenue & Rent Report.

“I think if you’re in any sort of small business that’s nonessential, you’re feeling the struggle,” Winzeler said. 

The historically low national vacancy rate of 4.1% looms over the retail landscape, forcing tenants large and small to battle for any available space. Inflation had already boosted expenses like insurance, labor and taxes.

Now, landlords’ desire for rent increases of up to 4% is disproportionately impacting independent retailers like Winzeler in cities like Houston. 

Those impacts haven’t gone unnoticed by retail brokers, who say their role in the market has become difficult as they watch mom-and-pops grapple with increasing costs and, in some cases, close up shop.

Some mom-and-pop shops have been operating consistently for 10 to 15 years despite flat sales, said Jazz Hamilton, senior vice president of CBRE’s Houston retail advisory and transaction services group. Those retailers are now struggling to increase profits to match cost increases, he said.  

“Rents and taxes and insurance go up, up and up. The profits drop, drop, drop,” Hamilton said at a press luncheon last month. “And then they’re not profitable.”

For every two small tenants Hamilton signs in a shopping center, two are moving out because they can’t afford it, keeping Houston’s retail vacancy rate consistent at about 5.4%, he said. 

“We are getting more and more pressure on those rental increases to go up at 2% and 3%. I’ve even heard some landlords pushing 4%,” Hamilton said.

Development of retail space is at a multidecade low, which is expected to continue through this year, according to a Colliers report. Those supply constraints help explain why average asking retail rents shot up to $20.86 per SF in Houston at the end of 2024, up from less than $17 per SF in 2018, according to Cushman & Wakefield. 

Nationally, triple-net asking rents increased to $34.47 in the fourth quarter, driven by strong demand to backfill empty spaces and a lack of new product, Colliers said. 

“I hear some of my peers talk about, ‘Oh, it’s great. We’ve got four people waiting on a space,’” Hamilton said. “I’m here to tell you, that’s not the case across the board. When you get into just normal, average retail, there’s still a lot of mom-and-pop. That probably makes up 50% of the market, and those people are struggling. It’s tough.” 

Steve McKinley owns Urban Value Corner Store, a convenience store chain that opens in mixed-use developments and apartment complexes in the Dallas-Fort Worth region as amenities for residents. McKinley founded the business about five years ago and just opened his 11th store, but increasing market rents are now heavily dictating where those new stores can go, he said. 

Most of his stores are locked in to five-year leases. If new asking rates rise significantly enough, he can shift to a different location, he said.

“Being a small-business owner, it becomes uncompetitive for us to consider [some spaces],” McKinley said. 

But most small businesses don’t have the economies of scale to survive accelerating cost pressures like rent hikes, natural disasters, inflation and tariffs in the same way larger corporations can, said Adrienne Crawford, Atlanta-based first vice president for Matthews Real Estate Investment Services. 

Crawford and First Vice President Lily Heimburger represent landlords, and they said rent increases tend to come with improvements to the properties. But tenants are now quicker to ask for a breakdown of all costs to know how they benefit from them, they said. 

“Of course, some of these smaller local restaurants and retailers are not going to be happy about the increase, but it will benefit them in the end,” Crawford said. “It’s just a little bit of sticker shock.” 

Rents are just part of the issue. Other rising costs can mean death by a thousand cuts for smaller retailers.

Anil Mohammed said he has seen insurance rates for retail double over the past decade. Mohammed is co-founder of Houston-based DML Capital, a retail developer of neighborhood service centers and strip centers with $500M of assets under management. 

“The insurance market is absolutely — I don’t even know how to put it nicely,” Mohammed said. “It’s just nuts.” 

DML consolidates its insurance policies to get a lower rate, as it often leases to mom-and-pop and regional tenants and aims to keep them long-term, Mohammed said. 

“A lot of guys won’t try to fight for every triple-net cost they can because they think they’re just passing it on to the tenant,” he said. “But in reality, if your goal is to keep the tenant for as long as possible, it’s in your best interest to fight it and get the cost down as low as possible.” 

Meanwhile, retail REITs are experiencing strong earnings growth driven by same-property net operating income increases. Brixmor Property Group’s same-property net operating income increased 4.7% during the fourth quarter, it reported during its last earnings call.

Kimco Realty cited a 4.5% same-site net operating income increase in Q4. Its full-year same-site net operating income growth was 3.5%, again primarily driven by higher minimum rent. 

“The primary driver continues to be higher minimum rents contributing 3.8%, mostly from contractual rent increases and faster rent commencements,” Kimco Chief Financial Officer Glenn Cohen said on its Q4 earnings call. 

It is possible that rent increases reach a point that mom-and-pop and regional operators would be driven out on a massive scale by increasing operating costs, Mohammed said, but he doesn’t expect that to happen.

“Then all you’re left with is your big-box national chains, national tenants, but you lose all the flavor for all the local unique stuff that a metropolis like Houston would give you,” he said. “There has to be a realignment on rent and some kind of realignment on insurance that creates a new equilibrium.” 

Crawford is also hopeful that the problem can be solved and retailers can temporarily pass higher costs on to consumers to make it through the hardest times.

“When the price of chicken wings went up, everyone had to increase their wing prices,” she said. “It’s happening across the board. You just see it more in the smaller restaurants than you do the larger chains and national concepts.” 

Fluctuating triple-net rent prices have always been a part of retail leasing, Heimburger said. 

“It’ll right itself at some point, we hope,” she said. “This problem will hopefully be solved. It always gets solved.” 

But any solution will come too late for Winzeler and others in his shoes.

Winzeler negotiated a tiered lease with his landlord, meaning it increased over the year Laguna Madre was open.

That year brought election uncertainty and continued inflation, culling the number of people interested in pursuing custom artwork and recreational clothing, he said. By the time the lease reached the highest amount negotiated, Winzeler said he was completely tapped out. 

“Not only am I reconsidering the retail portion of this business, I’m considering closing the business altogether because of how discouraging this has been,” he said. 

Houston is the only Texas metro with growing multifamily rents at the moment. But seeing its apartment market as in the clear would require rose-colored glasses.

Houston’s multifamily rental rate has grown 1.2% in the last year, according to a July report from MRI ApartmentData, a market insights product from MRI Software. This brings the average apartment price in the city to $1,279 per month.

The growth is in contrast to the rest of Texas, where multifamily rents are starting to fall, and to a national trend that saw year-over-year drops averaging 1.8% as of this month.

Zooming out, however, this won’t put Houston’s multifamily market ahead of other cities anytime soon. Houston is playing some short-term catch-up, but good times are unlikely to keep rolling as the same headwinds impacting other markets blow in.

Sun Belt markets like Phoenix and Tampa, Jacksonville and Orlando, Florida, all enjoyed rent growth of more than 30% from the start of 2020 through the end of 2022, according to MRI ApartmentData. In Texas, Dallas-Fort Worth’s average rent grew 26.9% and Austin’s grew 24.5%.

Houston trailed at 18.5% growth over that period. 

“Houston was the runt of the rent growth litter for the years coming out of the pandemic when the economy reopened,” Bruce McClenny, industry principal for MRI ApartmentData, said in a statement to Bisnow.

While Houston still had strong job growth and in-migration, it wasn’t as popular as Florida and Arizona or cities like Atlanta, Nashville, Tennessee, or Charlotte and Raleigh-Durham, North Carolina, he said. Within Texas, DFW and Austin were the “darling destinations,” McClenny said.

Now, Houston’s rent has grown 1.2% in a year, the only Sun Belt city among 11 others tracked by MRI ApartmentData to do so. Tampa remained flat, and Austin and Phoenix-Tucson dropped more than 4%.

McClenny said that this year, “those markets that were some of the hottest are now the coolest.”

Renters are behaving as they traditionally do under threat of recession, he said — moving in with relatives, finding roommates and turning to shadow rentals, including mom-and-pop single-family units.

But while Houston appears to be holding its own, it is more that it never rose as high and hasn’t fallen as fast as other cities.

“Houston has done a reversal from last to first, but this is a dubious honor,” McClenny said. “It’s the old adage that the highest fliers have the most to fall.”

Courtesy of MRI ApartmentData

Houston’s lower rents and slower growth have led to less development interest than other peer cities, said Todd Marix, senior managing director of investment sales at Berkadia’s Houston office. 

“Houston’s rents just didn’t do enough to offset the rise in construction costs,” he said.

A lack of development investment helps explain why rents are rising in Houston and falling elsewhere, Marix said. In Houston, apartments under construction relative to all stock is about 2%, he said. 

That trails DFW’s 5% and Austin’s whopping 16%, he said. Austin will have difficulty absorbing all of that new stock, meaning many landlords will have to offer concessions to new residents — like one to three months free — and rents will soften, Marix said.

Even though Houston won’t have as much to absorb, the roughly 39,000 units in the pipeline have the potential to put an even greater dent in the metro’s historically low multifamily occupancy rates, Bisnow previously reported. Houston’s occupancy sat at 89.6% this month, according to the MRI ApartmentData report. 

In other Sun Belt markets, occupancy is closer to 95%, Marix said, adding Houston has long had an issue with oversupply.

“Houston’s kind of famous for overbuilding as the market is constricting,” Marix said.

Additional trouble could be ahead for apartment owners that utilized floating-rate debt, and it is likely to be more prevalent for workforce or Class-C housing owners, Marix said. 

“That’s usually the first shoe to fall within a deteriorating situation,” he said. “These buildings are older, they require more capital expenditure.”

Houston-based Applesway Investment Group saw a $229M portfolio of multifamily properties foreclosed on in April. Applesway’s inability to cover loans on four Houston apartment properties led to them being resold at auction the same month.

It is also unlikely that anyone budgeted for the way interest rates rose last year, Marix said.

“The speed in which it changed was incredible and caught a lot of people off guard,” he said. 

If an owner bought late in the cycle when valuations were high, utilized floating-rate debt and had a high loan-to-value ratio, the only options are to sell, refinance in an unfavorable lending environment or hand over the keys to a lender, he said. 

“I mean, nobody’s going to overcome that particular set of circumstances,” Marix said.

And while Houston’s multifamily rents are growing, albeit by small margins, they are not keeping pace with operating costs, namely taxes and insurance, he said. 

“If you’re on a floating-rate debt, your debt service has gone up,” Marix said. “The water is just getting hotter.”