The number of estate agencies and property businesses showing signs of critical financial distress increased by 19.1% in the first quarter of 2026 compared with the same period in 2025, according to new data from Begbies Traynor Group’s Red Flag Alert report.
By the end of March 2026, 7,719 businesses in the real estate and property services sector were classified as being in critical financial distress. This placed the sector third highest out of 22 industries monitored by the advisory firm, behind only construction and support services.
Although the figure was lower than the previous quarter, which BTG attributed to a typical seasonal slowdown at the start of the calendar year, the year-on-year increase indicates growing pressure across parts of the property market.
Significant distress levels climb
The report also found a significant rise in businesses experiencing less severe but still concerning levels of financial difficulty. A total of 79,118 property-related businesses were categorised as being in “significant” financial distress during Q1 2026, up 15.1% year-on-year.
Several areas of the sector recorded notable increases. Companies involved in property management on a fee or contract basis saw significant distress levels rise by 17.1%, while resident property management firms recorded a 20.7% increase. The number of estate agencies in significant distress increased by 5.3% compared with the previous year.
The findings come as sales activity remains challenging across the market, with businesses facing higher borrowing costs and weaker consumer confidence.
Wider economic pressures
Across the wider UK economy, the number of companies in critical financial distress rose by 36.9% year-on-year to more than 62,000 businesses, while firms in significant distress climbed to almost 635,000.
Julie Palmer, managing partner at BTG, said: “Many property businesses would have been hoping for interest rates to have continued their trajectory downward to help confidence and momentum return to the market. However, with interest rates and supply chains at risk of becoming more difficult the ripple effect on the property market can be almost instantaneous.”
Palmer added: “Real estate had only just started adapting to or seeing the true impact on distress of increased tax burdens for businesses. But with these challenges now exacerbated, we will inevitably see the emergence of winners and losers across real estate, with a number of firms being pushed towards and over the edge of closure.”
Market consolidation expected
Palmer suggested that larger groups may acquire distressed property firms, obtaining their workforce, portfolio, tenants and client base in the process. However, she cautioned that no company can be completely immune to the economic shocks currently affecting the market.
Anthony Spencer, national managing partner of BTG Eddisons, noted that the Renters Reform Bill has seen private landlords selling up, with larger, professional landlords becoming more dominant. This shift, combined with rising rental costs affecting tenants, is having an impact on property firms, particularly agents, as sales slow and rental client bases shrink.
Spencer said property auctions are growing in popularity as landlords seek quick and more guaranteed sales, while agents use this path to remove much of the uncertainty and fall-through rates of an increasingly difficult mainstream market.
He added that the commercial market shows resilience, with demand for logistics sites, industrials, data centres and energy generation maintaining momentum. Spencer expects more land owners and businesses to unlock capital to invest in renewables and energy efficiency measures as controlling energy costs climbs higher on the boardroom agenda.
The data suggests the property services sector faces continued financial pressure in 2026, with year-on-year increases in distress levels pointing to structural challenges beyond seasonal fluctuations.
