Property sector sees sharp rise in financial distress as sales slow – BTG – The Intermediary

The latest Red Flag Alert research from BTG showed a sharp rise in financial distress among UK property firms in Q1 2026. 

The number of real estate and property services businesses in critical distress went up 19.1% year-on-year to 7,719. 

There were 79,118 in significant distress, up 15.1% compared to Q1 2025. 

The sector ranked third out of 22 for the number of firms in both categories, behind construction and support services.

The most affected areas included management of real estate on a fee or contract basis (up 17.1% to 14,077), buying and selling of own real estate (up 11.4% to 13,652), residents property management (up 20.7% to 6,499), and real estate agents (up 5.3% to 3,870).

Across the UK, the number of businesses in critical distress increased by 36.9% year-on-year to 62,193, while significant distress cases rose by 9.6% to 634,867.

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.”

Palmer added: “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.”

She said: “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, said: “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.”

Spencer added: ““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.”

He said: “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.”

He added: “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.”