Three major apartment REITs were downgraded by analysts amid concerns about high multifamily supply and the potential effects on rent growth.

Camden Property Trust, MAA and UDR were all downgraded by an analyst for Bank of America and by Piper Sandler, and Wells Fargo downgraded UDR, MultifamilyDive reported.

Supply has swelled nationally, with apartment construction reaching its highest level since the 1980s during the third quarter of this year and more than 128,100 new units coming online in the same period.

Rent price growth for new leases is slipping into the negative among REITs with heavy exposure to the Sun Belt, Bank of America Equity Research analyst for REITs Joshua Dennerlein wrote in an investor note summarized by SeekingAlpha.

“We believe rental price growth will become a compounding issue for the industry as peak deliveries of new supply are still several months away and interest rates are on the rise,” Dennerlein wrote.

Piper Sandler also downgraded MAA, citing supply pressure weighing on new rents, and downgraded Camden and UDR, “given the potential for further earnings pressure from bad debt and competitive supply lease-ups,” Piper Sandler Managing Director and Senior Research Analyst Alexander Goldfarb wrote.

“The 3Q23 apartment calls are among the most interesting we've experienced in our two decade career as the confluence of rising rates, supply, and pandemic-fostered bad debt conspire against apartments despite the strength of demand,” Goldfarb wrote.

Goldfarb also noted that he “never believed the blanket statement that supply in the Sunbelt was universally negative, as it always is submarket specific.”

Wells Fargo downgraded UDR based on its expectation that the REIT will deliver below-average core funds from operations growth, according to SeekingAlpha. Wells Fargo analyst James Feldman said he is concerned that Class-B units will underperform Class-A units as renters trade up, and more than half of UDR’s portfolio is Class-B, SA reported.

The high-supply market is already having effects. A report out this week from Zillow found landlords are offering at least one concession such as free months of rent or free parking on 30% of rental listings — the highest rate in two years.

Some of the same factors coming up against multifamily owners now might be a benefit later, analysts said.

“Despite our downgrades, we believe 2025 could be a strong year given the lack of building behind this current delivery wave and growing housing shortage,” Goldfarb wrote.