UDR Inc. executives predict stable apartment-market fundamentals in 2018 but do not expect raising tenants' rents to be a priority in the coming year, in large part because of competition from newly constructed buildings.
The company's weakest markets will likely be New York City and Austin, Texas, which together represent roughly 11% of forecast net operating income, COO Jerry Davis said on the company's fourth-quarter 2017 earnings call. In general, the company "will continue to favor occupancy over rate growth" in 2018, he said.
Executives at several other multifamily real estate investment trusts, including Equity Residential, AvalonBay Communities Inc. and Mid-America Apartment Communities Inc., said on recent conference calls that new construction is expected to present a challenge to existing properties in the coming year.
UDR is more optimistic about 2019, when executives are expecting new apartment deliveries to decline amid continued strong demand for housing in a growing economy, Chairman and CEO Tom Toomey said.
Some planned construction projects were delayed from 2017 into 2018 because of scarce labor and financing, and others could slip from 2018 into 2019, CFO Joe Fisher said. Still, he added that based on internal research and conversations with builders and other market participants, "I think we have a decent amount of conviction" that supply will trend downward beyond 2018.
UDR's own development efforts are expected to slow in 2018 because of the difficulty of meeting return requirements on new projects, executives said. Yet on balance, they said, the factors that make development difficult are good for the majority of the company's business as a landlord because they depress the supply of competing properties.
