A predicted downturn in Christmas trade has the business community concerned a slow holiday season could be the final straw that forces some local shops to permanently close their doors. Newcastle and Lake Macquarie businesses are expected to see a 12 per cent drop in trade, which doubles to 24 per cent in the Hunter Valley, according to the latest state-wide Business Conditions Survey. Alarmingly the number of businesses at risk of defaulting has risen to almost 5 per cent, a rise of more than 0.5 per cent, while Newcastle-Lake Macquarie was one of only two regions to register a drop in business sentiment. Business Hunter chief executive Bob Hawes said there had been a seismic shift in buyer behaviour in response to the cost of living crisis, such as families making the choosing to buy gifts for the children but not the adults this year. "It's understandable given the circumstances, and we're already seeing the impacts," Mr Hawes said. Hospitality operator Chris Johnston, who owns Good Brother Espresso and Slingtown Espresso, said he hadn't seen conditions this tough in 18 years of operation and fears shops could be forced to close. "It has never been harder to do business - cost of living, rent, energy, wages, and cost of goods are all increasing, and you can only raise coffee prices so high," he said. "Cafes, pubs and restaurants are in many ways the beating heart of our city, but the mood among the industry is very sombre. I think we could see an increasing number of closures in the next six months." East End Surf and Skate owner Aidan Essex-Plath said the trend toward online shopping had dramatically impacted sales in his brick-and-mortar store. "It's not a level playing field," he said. "It's an uphill battle for stores like mine to compete, online traders have greater buying power and are often less impacted by certain costs such as rent, which is by far our biggest expense." Mr Essex-Plath urged people to do their Christmas shopping locally, because it was a win-win for businesses and customers. "We continue to see people making big ticket purchases online, such as skateboards and surfboards, only to then bring them in here after receiving them to get them modified to their needs," he said. "In many cases they wind up spending more than they would have if they made an advised local purchase in-store in the first place." The Business Confidence Survey found three biggest concerns for businesses were insurance, energy and taxes, with rent, supplier costs, wages and transport costs also contributing to negative business sentiment. Mr Hawes said small businesses played a crucial, but often unseen role in creating healthy and vibrant communities. "Some [businesses] are really hurting, and a city without small businesses is no city at all," he said. "Understandably, rising interest rates and cost of living pressures are impacting foot traffic and spending habits, so we're encouraging people to weigh up their options and support local operators where they can."