Which of the following is an example of physical deterioration?

Physical deterioration refers to the decline in the condition of a property or its components due to age, wear and tear, or environmental factors. In this context, minor water damage exemplifies physical deterioration because it directly impacts the structural integrity or aesthetic quality of a building. Water damage can lead to mold, rot, or other physical issues, making the property less desirable or functional over time.

The other choices present different concepts. Outdated interior design relates to aesthetic preferences rather than physical condition. A busy highway nearby could impact a property's desirability (economic or environmental factors) but does not affect the physical structure itself. High-end materials that are no longer in style may reflect trends in design, yet they do not imply any physical deterioration; instead, they may suggest that the materials are still in good condition but simply unfashionable.