The meaning in the second example changes a bit
Due to encroachment by agents <== this means that the agents caused the encroachment
Due to agents' encroachment <== this means that the encroachment was of (possessive) the agents.
In normal English both are fine, but in the GMAT we want to be precise and methodical.
Personally I would change 2 into: "the reservation center was packed because of the encroachment by agents"
For the grammatical form of ex 1 refer here:
http://www.englishclub.com/grammar/nouns-possessive.htm
Due to encroachment by agents <== this means that the agents caused the encroachment
Due to agents' encroachment <== this means that the encroachment was of (possessive) the agents.
In normal English both are fine, but in the GMAT we want to be precise and methodical.
Personally I would change 2 into: "the reservation center was packed because of the encroachment by agents"
For the grammatical form of ex 1 refer here:
http://www.englishclub.com/grammar/nouns-possessive.htm