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Conditions in the region are getting worse with defaults projected to rise, says CreditorWatch.
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SE Queensland the epicentre for vulnerable tourism, hospitality
22 May 2023
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South-East Queensland’s reliance on tourism, hospitality and construction make it the nation’s most vulnerable region, according to the latest CreditorWatch Industry Insight.
CreditorWatch said its most recent Business Risk Index survey and other trade data showed conditions were getting worse in the region and it now had four out of the top 10 zones most likely to default in the next 12 months.
Ormeau-Oxenford, Surfers Paradise, Southport and the Gold Coast Hinterland all have default rates of nearly 6 per cent and projected rates for the next 12 months above 7 per cent.
“One noticeable trend that stands out in both our Business Risk Index data and other trade and survey data is the worsening conditions in SE Queensland,” said CreditorWatch chief economist Anneke Thompson.
“According to NAB’s March Business Sentiment Survey, Queensland is the only state where business confidence is reading at a negative figure.”
“South-East Queensland’s higher risk may be to do with the concentration of food and beverage, tourism and construction type businesses in the area.
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Ms Thompson said the food and beverage sector was bearing the brunt of services-based inflation, which was rising despite a reduction in goods inflation.
ABS data for the year to March shows overall inflation easing to 7 per cent but services inflation increasing at a two-decade fastest pace of 6.1 per cent.
“Restaurants and cafes are still bearing the brunt of cost increases as they are such labour-intensive businesses, with the costs of the goods they buy able to fluctuate daily based on supply and demand,” she said.
“Unfortunately, cafes and restaurants are unable to change the prices they charge customers with as much regularity as their suppliers can change prices on them, and as a result, margins are very thin, and insolvencies higher than all of the industries we monitor.”
The latest Business Risk Index showed the food and beverage sector was at the highest risk of external administration or credit default, compounding other problems in South-East Queensland.
“For South East Queensland, particularly the Surfers Paradise region, there is the added burden of higher commercial rents and low international tourism numbers that are adding to financial difficulty of businesses in the area.”
“Higher commercial property rents increase the risk of insolvency. Many businesses in South-East Queensland that are reliant on strong foot traffic will be paying higher rents for the best locations, with this only adding to the cost strain.”
“Queensland also appears to be suffering from higher than average labour costs. Even though the state has recorded a large influx of migrants, the outlook for construction costs and labour, as an example, is higher than other areas.
“This is because many migrants to Queensland are of retirement age, so actually add to the demand for labour, and don’t contribute to the supply of labour.”
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