Competition from new apartment buildings will continue to hurt Mid-America Apartment Communities Inc.'s business in 2018, but most deliveries should be concentrated in the first half of the year, company executives said.
The company is expecting roughly 52,000 new apartment units to come online in the first quarter of the year in markets where the multifamily real estate investment trust owns properties, and roughly 154,000 new units over the course of the year, executives said on the company's fourth-quarter 2017 earnings call. That total would represent a decline of 4% from the 2017 amount but would still be enough to hurt the company's ability to raise rents at its properties, they added.
Company leaders did not dispute an analyst's suggestion that new supply in Mid-America's markets accounts for roughly one-third of the expected apartment construction across the U.S.
New supply has challenged several of the top apartment landlords in recent years, seemingly regardless of portfolio orientation or market strategy. Equity Residential, which mostly operates in large, coastal urban markets, in contrast with Mid-America's focus on smaller cities in the Sun Belt, suffered from waves of construction in many of its own top markets, and continues to forecast weakness in New York City.
Mid-America Chairman, President and CEO H. Eric Bolton said landlords in Sun Belt markets in the southeastern U.S. have traditionally faced more supply challenges than the national average proportionate to their size. Yet while conventional wisdom traditionally held that large urban markets were safer for landlords due to high barriers to entry, over-building has struck these markets as well, Bolton noted.
"I would argue [that] there are no more high-barrier markets, in a way," Bolton said. "I think supply can happen anywhere."
Mid-America has sought to manage the threat of new supply by focusing on markets with high demand for apartments, Bolton said.
While the company expected high levels of new construction in 2017, executives there were surprised that deliveries peaked late in the year during a traditionally slow period for leasing, which prompted landlords to offer tenants rent breaks to maintain their properties' occupancy, Bolton said. In 2018, he said, there are encouraging signs that construction will peak early in the year and slow in later quarters.
