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Which commercial sectors face the highest risk of default in 2022?

By Juliet Helmke
02 June 2022 | 1 minute read
commercial sectors

A new report has revealed the industries facing the highest rates of financial distress over the next 12 months.

According to data from CreditorWatch, food and beverage services are the most likely to have trouble repaying their debts, with 7.1 per cent of businesses in this sector facing that risk in the year ahead. Arts and recreation services are next in line, with 4.8 per cent of businesses under pressure of default, while companies involved in transport, postal and warehousing are close behind at 4.7 per cent.

Defaults in these sectors will have clear impacts for landlords, as well as commercial rental vacancy rates across the country.

CreditorWatch chief executive Patrick Coghlan explained the trickle-down effect interest rate rises are having on these industries.

“The RBA’s interest rate rise decision has meant Aussies are tightening their belts with many households thinking about where they can cut back. Cooking and entertaining at home as well as cancelling subscriptions are some of the simplest things people can do to reduce spending,” Mr Coghlan said.

“Industries that are deemed as unessential will always present as higher risk and unfortunately, it looks like inflation is going to be more of a long term issue than originally hoped.”

The firm’s chief economist Anneke Thompson added that global instability had exacerbated pressures facing Australian businesses.

“Annualised inflation has recorded its largest rise since the introduction of the GST in 2001. This can largely be attributed to supply chain factors such as the war in Ukraine, China shutdowns and a lack of labour in supply chain networks.

“However, there are significant demand factors too. Australia has been flooded with government stimulus money over the past two years and the savings rate of Australians during lockdowns increased dramatically. Whilst this gives us a bit of a buffer in terms of extra money, it’s also a large part of the problem in that it has been unleashed on the economy fairly suddenly, just as supply-side issues are taking hold,” Ms Thompson explained.

Mr Coghlan noted that much of the performance of businesses in the at-risk sectors would come down to key decisions made by Australia’s new federal government in the coming months.

“There’s a lot of headwinds that are hitting the economy right now and the upcoming decision of the Fair Work Commission on the minimum wage will give us more of an idea of just how stressed households are going to be as we work through both the inflation and monetary policy tightening cycles.

“While household balance sheets are strong, debt is higher than it has ever been and savings could quickly run out throughout the year if inflation takes some time to fall back. All of this presents increasing risks to businesses as strong demand conditions could start to falter,” he said.

Which commercial sectors face the highest risk of default in 2022?
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ABOUT THE AUTHOR


Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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