Regional Australian businesses are failing 13% less than their city counterparts, according to CreditorWatch’s latest analysis.
What’s happening: High commercial rents and property prices in these cities have placed major strain on SMEs, compounded by increases in insurance premiums, wages and utilities.
Why this matters: Despite Sydney and Brisbane currently leading in business failures, their rates are beginning to level off while smaller capitals like Hobart and Adelaide see accelerating increases.
Australia’s business landscape has split sharply along geographic lines in 2025, with the east coast bearing the brunt of rising business failures while western states show remarkable resilience.
CreditorWatch’s November Business Risk Index reveals that business failure rates across 2025 have been highest across the three eastern states of NSW, Queensland and Victoria. On a capital city basis, high commercial rents and property prices in Sydney and Brisbane have placed major strain on SMEs in particular, in addition to cost pressures such as increases in insurance premiums, wages and utilities.
Both Greater Sydney and Greater Brisbane experienced failure rates of 5.82% in the 12 months to 30 November 2025, up from 5.48% and 5.18% in November 2024 respectively. In contrast, Melbourne recorded 5.55%, Hobart 5.07%, Adelaide 4.73% and Perth 4.70% in the twelve months to 30 November 2025.
“Our Business Risk Index highlights a clear divergence: larger capitals like Sydney and Brisbane still lead in failure rates, but their growth trajectory is flattening compared to Hobart and Adelaide,” says Patrick Coghlan, CEO of CreditorWatch. “These cities’ smaller, steadier business environments shield them from the volatility seen in larger capitals.”
However, Coghlan warns the underlying issues remain serious.
“The key underlying pressures, high costs, subdued demand and tight margins, are far from resolved. Businesses need to remain vigilant and proactive in managing risk as these financial pressures will remain throughout 2026, particularly if the RBA raise interest rates to bring inflation under control.”
Tale of two economies
Australia’s capital cities have navigated 2025 with starkly different fortunes. Perth stands out as a growth engine, powered by migration, mining investment and infrastructure upgrades that have lifted jobs and spending. Western Australia led the mainland with robust 3.4% growth in GDP, driven by mining and record household consumption.
Adelaide has leveraged its stable service base and construction surge to maintain steady expansion. South Australia’s economy has performed well thanks to a surge in construction and housing investment, buoyant consumer spending and robust job creation, with unemployment pushed to multi decade lows.
Hobart has thrived on record retail activity and a tourism revival, with visitor numbers reaching 1.3 million by March 2025, generating substantial employment and activity across hospitality, food, retail and culture.
Melbourne’s recovery from pandemic era setbacks continues, supported by strong labour demand in healthcare and construction. Victoria’s economy remained resilient in 2024-25, supported by strong job creation, rising business investment and major infrastructure projects. However, rising input costs, tighter credit conditions and slowing consumer demand have contributed to an increase in business failure rates, particularly among small and medium enterprises in retail, hospitality and construction sectors.
Brisbane has shown improving confidence but faces cost pressures and payment strains. The Queensland economy has shown positive signs over the past year, with business confidence increasing and infrastructure investment remaining strong. However, sluggish consumer demand and higher costs have squeezed cashflow for many businesses, leading to higher payment defaults and business closures. As a result, Queensland’s business failure rate is the highest in Australia.
Sydney remains a national hub, yet elevated operating costs for businesses, particularly the highest commercial rents in the country, and rising insolvencies are testing resilience across key sectors. The NSW economy has faced subdued conditions over the past year, with business insolvencies plateauing at historically high levels.
“This is largely driven by persistently high costs and pockets of stress such as Western Sydney, where many small businesses contend with lower household incomes, high rents and elevated personal insolvency rates,” the report notes.
SMEs, which operate at tighter margins than larger businesses, are finding it especially tough.
Regional advantage
One of the report’s most striking findings is the performance gap between city and country businesses. Failure rates in regional areas average about 13% lower than in major cities, largely due to structural advantages that create more stable trading conditions.
Regional markets are less saturated, so businesses face far less competitive pressure than their metropolitan counterparts. Lower operating costs, especially rent, labour and utilities, also give operators greater financial resilience when conditions soften.
The CreditorWatch Business Risk Index rankings show a significant difference between the lowest risk region, Regional South Australia with a score of 87 on the index, and the highest, Sydney, which has a score of 25.
Demand in regional economies is steadier, supported by anchor industries such as agriculture, mining, health and education, which provide consistent employment and spending. Strong customer loyalty and long standing business relationships further support stability, contributing to a higher share of well established businesses with lower failure risk.
Regional areas also have fewer high risk, high churn sectors like CBD hospitality, retail strips and fast growth startups, which drive much of the insolvency activity in capital cities. Combined with generally more conservative borrowing and expansion practices, these factors create a more predictable, less volatile operating environment for regional businesses.
Interest rate risks ahead
At a national level, insolvencies dropped back in November and appear to be oscillating around a flat or gradually improving trend. Insolvencies remain well below the levels of late 2024 and around the levels that have applied for much of the second half of 2025.
At a sector level, insolvencies have risen in Transport, Postal and Warehousing, Retail Trade and Manufacturing and remain elevated but stable in Construction. There have been encouraging improvements in recent months in insolvencies in Wholesale Trade and Food and Beverage Services.
However, trade payment defaults, one of the best early warning indicators of potential insolvency, provide cause for caution. Payment defaults eased slightly in November but remain near the highest levels recorded, which suggests many firms continue to experience financial pressure.
Ivan Colhoun, Chief Economist at CreditorWatch, says the period of improving economic conditions may be coming to an end.
“It’s likely that the period of improving economic conditions may be coming to an end as higher inflationary readings in late 2025 halt interest rate reductions and increase the risk of an earlier return to higher interest rates in 2026,” says Colhoun.
“The RBA Board signalled in early December that it would be closely monitoring upcoming inflation data for evidence that above target inflation was persisting. This suggests a higher than expected Q4 CPI could see an interest rate increase as early as the February Board Meeting.”
If realised, this would likely reimpose financial pressures on many households and businesses and contribute to less favourable business and credit conditions. One possible offset might be an emerging upturn in parts of the Mining sector due to much higher prices for some commodities such as gold, silver and copper.
“Overall, these developments suggest that the rate and level of insolvencies will likely remain somewhat elevated in the year ahead,” Colhoun concludes.
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