Real estate among most distressed sectors

Real estate is the second-most distressed sector in Europe, behind only industrials, according to law firm Weil, Gotshal & Manges. The firm’s latest Weil European Distress Index said overall levels of corporate distress over the final quarter of 2024 stabilised but remain above their long-term average. The report said a recovery is likely to be “uneven” due to structural vulnerabilities, geopolitical tensions and industry-specific headwinds. Real estate companies have been hit by high interest rates, limited refinancing options and reduced investment metrics, Weil said. “Despite some stabilisation in valuations, these issues are expected to persist in 2025, affecting liquidity and profitability,” the team added. Andrew Wilkinson, partner and co-head of Weil’s London restructuring practice, said: “The data for Q4 2024 underscores the challenges ahead, with flat growth and declining investment metrics painting a difficult picture for 2025. While higher interest rates and fiscal tightening are likely to weigh on investor confidence, our outlook is contingent on a complex mix of geopolitical and economic factors. “Political instability in key markets like France and Germany may complicate the European Central Bank’s efforts to lower interest rates, increasing the chance of a prolonged elevated period. This scenario, when combined with near-zero growth and lingering inflationary pressures – albeit at reduced levels compared to 18 months ago – could create a challenging economic environment.” The UK was the second most distressed market, behind Germany, with high borrowing costs and corporate uncertainty following the Autumn Budget. “The country ended the year in stasis, as businesses and investors delay capital expenditure in anticipation of eventual rates cuts,” Weil said. “However, a modest easing of distress is expected in 2025, supported by gradual improvements in profitability, market conditions and risk metrics.” Image © Oleg Gamulinskiy/Pixabay