Real estate was again the most troubled sector in Europe in the last quarter of 2023 due to persistently high interest rates, declining values, increased energy and construction costs and increasingly expensive financing, according to a study by law firm Weil, Gotshal & Manges.
This is the fourth consecutive quarter in which real estate has topped the Weil index of distressed sectors in Europe. Worsening investment performance reflects an increasingly challenging outlook for heavily indebted companies, which may not be able to repay or refinance their debt in the coming months, said the authors of the report, which used data from more than 3,750 listed European companies.
Healthcare was the second most depressed sector in the last quarter of last year, followed by retail, consumer goods and industrials.
The German corporate sector continues to report the highest level of problems among the countries included in the study. Despite the contraction in 2023, Germany continued to avoid recession after the energy crisis. This week, monthly data on exports, factory orders and production in Europe’s largest economy are expected or have already been released. It is expected to report a decline in all these indicators in December, according to the average forecast of economists.
Britain and France rank second and third among the countries with the highest level of problems in the corporate sector, the research shows.
The problems have not necessarily led to a sharp increase in restructuring activity. This is partly due to a time lag, but also because many companies refinanced in the years of the Covid pandemic, so they pushed their debt maturities to 2025 and 2026. Many companies also had very favorable contract terms that allowed borrower-friendly structures, he adds.
When restructurings accelerate this year and next, they won’t look like changing terms in exchange for extending maturities, but more comprehensive restructurings.
