Breaking Property News 16/01/25
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Prolonged corporate distress and uneven 2025 recovery
Corporate distress levels in Q4 2024 showed signs of stabilising compared to the same period in 2023, but they remain above the long-term average, according to the latest Weil European Distress Index (WEDI). The report forecasts an uneven recovery in 2025, driven by structural vulnerabilities, geopolitical tensions and industry-specific headwinds.
With the launch of the WEDI’s future forecasting component, the outlook for corporate distress will depend on several factors such as the ongoing conflicts in Ukraine and the Middle East, along with broader political and economic developments across Europe. Additionally, shifts in global trade policies, particularly in response to protectionist trends under a new US administration, may further disrupt export-driven economies.
Sector trends: Q4 2024 data and 2025 outlook The last quarter of 2024 saw the Industrials sector emerge as the most distressed sector, with rising capital costs and tightened financing conditions creating significant hurdles. Poor liquidity, reduced demand and shrinking project pipelines add further strain to the sector. These growth barriers are expected to intensify in 2025, driven by ongoing geopolitical pressures and potential trade restrictions, which will particularly affect export-reliant industries such as automotive manufacturing.
High interest rates continue to impact the Real Estate sector, now the second most distressed sector, with limited refinancing options and reduced investment metrics adding pressure. Despite some stabilisation in valuations, these issues are expected to persist in 2025, affecting liquidity and profitability.
Retail and Consumer has risen to the third most distressed sector in Q4, driven by weak investment metrics, high borrowing and labour costs and subdued consumer confidence, all of which have reduced profitability. Looking ahead, fiscal tightening and elevated interest rates will likely constrain discretionary spending further, whilst underinvestment in innovation and efficiency could hinder mid-sized companies grappling with liquidity pressures from maintaining competitiveness.
Meanwhile, Infrastructure experienced a sharp rise in distress, moving from eighth to fifth in the ranking. Falling investor sentiment, coupled with challenges at major utility companies, has driven down valuations. These issues, alongside constrained financing and slowing project pipelines, are expected to persist in 2025.
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.
If Germany revisits its debt brake policy – a topic of political debate – it could create opportunities for increased investment in key areas such as infrastructure and the energy transition. Additionally, progress towards a resolution in Ukraine could deliver a material improvement in stability and economic confidence, unlocking opportunities for trade and investment across the region.”
Country trends: Q4 2024 data and 2025 outlook The economic outlook for Europe in 2025 remains cautious. Whilst a slight improvement in growth is expected compared to 2024, the recovery is likely to be uneven, constrained by structural challenges, geopolitical risks and monetary pressures.
The UK ended 2024 as the second most distressed market, facing 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. However, a modest easing of distress is expected in 2025, supported by gradual improvements in profitability, market conditions and risk metrics.
Neil Devaney, Partner and Co-Head of Weil’s London Restructuring practice, said: “While signs of recovery are emerging, diverging regional and sectoral trends are set to define Europe’s economic landscape as we head into 2025. Many challenges from the past year are likely to persist or even escalate. Simultaneously, shifting geopolitics and global trade patterns are expected to create both opportunities and setbacks.
For example, corporate distress may ease in some areas but will differ significantly by region and industry. Germany, traditionally Europe’s economic powerhouse, is forecast to face growing corporate distress, whilst France may encounter pressure on its economic foundations. In contrast, Spain and the UK appear comparatively well-positioned for growth.”
Andrew Stanton Executive Editor – moving property and proptech forward. PropTech-X
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