Financial pressure across the property sector intensified during the first quarter of 2026, with a sharp rise in the number of estate agencies and property businesses showing signs of serious financial distress.

New research from Begbies Traynor Group’s Red Flag Alert report found that the number of property and real estate firms in “critical” financial distress increased by 19.1% compared with the same period last year.

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, placing the sector third highest out of the 22 industries monitored by the advisory firm, behind only construction and support services.

Although the figure was lower than the previous quarter — reflecting what BTG described as a typical seasonal slowdown at the start of the calendar year — the year-on-year increase points to growing pressure across parts of the property market.

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.

Businesses involved in buying and selling their own real estate also experienced rising financial strain, while the number of estate agencies in significant distress increased by 5.3% compared with the previous year.

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.

The latest figures underline the continued financial pressures facing many businesses amid higher borrowing costs, weaker consumer confidence and slower market activity.

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. It is an area of the economy that relies heavily on perception, confidence and access and affordability of money. The impact of the war in the Middle East may already starting to be felt by this sector.

“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.

“One potential outcome is that larger groups will have the means and the motive to sweep up the distressed property firms, acquiring their workforce, portfolio, tenants and client base in the process. However, no company can be completely immune to the economic shocks we are seeing and overcoming the challenges of today may be a bridge too far after years of challenges since the pandemic.”

Anthony Spencer, national managing partner of BTG Eddisons, commented: “The real estate sector has been experiencing significant change. The Renters Reform Bill has seen private landlords selling up with larger, professional landlords becoming more dominant and despite showing some resilience in the past year the market for sales is now feeling the challenges of uncertainty on interest rates. Undoubtedly, this is having an impact on property firms, particularly agents, as sales slow and rental client bases are shrinking.

“In these conditions we are seeing property auctions growing in popularity for both sell and buy side. Landlords seeking an exit can find a quick and more guaranteed sale as the pool of buyers, prospective homeowners included, grows. Agents are also using this path as it removes much of the uncertainty, fall through rates and pitfalls of an increasingly difficult mainstream market.

“There is also resilience in the commercial market. Demand for logistics sites, industrials, and increasingly data centres and energy generation has kept up momentum of sales and value. The use of land is becoming increasingly diverse as owners become interested in diversifying or removing the risk and liabilities attached to what they have – this includes local authorities which can find a better use for land or the money they make from it.

“As controlling energy costs climbs higher on the boardroom agenda we expect to see more land owners and businesses unlocking capital to invest in renewables and energy efficiency measures. We are already starting to see this as many companies seek to head off the risk of distress where they can before it reaches their balance books.”