Real estate dubbed most distressed sector

The European property market is the most distressed sector, new research suggests.

The latest Distress Index, from restructuring firm Weil, has warned that high interest rates, falling valuations, elevated energy and construction costs and increasingly expensive financing are all bearing down on the European real estate market.

In the residential market, rising interest rates are also impacting housing affordability, softening the outlook for house prices, Weil warned.

Businesses are grappling with the dual challenge of managing rising costs and sustaining production, exacerbated by the ongoing battle against inflation and high interest rates, the report warns.

It said: “Having passed through cost increases, companies are now having to reduce prices to sustain sales volumes. Rising input costs will squeeze margins further and put more pressure on corporates’ profitability.”

Andrew Wilkinson, senior European restructuring partner and co-head of Weil’s London restructuring practice, said: As the real estate sector takes the lead in distress within Europe, it’s clear that investment hesitancy and rising costs are symptoms of a larger economic malaise. High leverage poses a significant vulnerability in an unforgiving market, where companies confront rising costs against a backdrop of falling valuations.

“Despite falling inflation, retail and consumer goods companies are still under immense pressure. A challenging Christmas trading period, lack of consumer spending, and issues around pricing reductions have left retailers feeling less than optimistic about the year ahead. With escalating tensions in the Red Sea impacting trade routes, businesses will be monitoring what this will mean for distress levels, particularly with regards to issues around profitability.”