Should I avoid a niche because many other agencies already target it?

No. Many agencies serving a niche is validation, not a reason to avoid it. If lots of people serve a niche, it is because it works and the businesses pay for these services. Roofers, for example, have many agencies serving them because roofers pay for these services.

Choosing a proven niche is lower risk than being a trailblazer on a path nobody has tried. Every niche has people targeting it, and you can stand out with a different angle on the same niche. Already having clients, experience or relationships in a niche is a very good reason to pick it. Once you decide, avoid second guessing and switching niches, because you will have to redo your work.