March 4, 2024

Alliance keeps a close eye on the healthcare industry, to understand our tenants and assess what changes might impact our investment strategies.

Recently, we’ve seen a big spike in healthcare labor costs.

The healthcare labor market has been tight ever since the early days of the pandemic. When everything else was shutting down, demand for doctors, nurses, physicians assistants, administrators, and every other kind of healthcare worker spiked.

With the pandemic behind us and the economy making a strong recovery, now the entire labor market is tight. Unemployment is at historic lows, the stock market is at historic highs, and GDP is booming.

Under these conditions, it’s no surprise to see that healthcare businesses are struggling with high turnover and rising labor costs. So what does this mean for medical office building (MOB) investors like us?

Thankfully, the answer is very little.

The whole medical industry is thriving and highly profitable. Higher labor costs and churn may be hitting the bottom line for medical businesses, but they’re not passing through to MOB investors. Demand for medical facilities remains high and lease defaults are extremely low.

High labor costs are stimulating a few responses. We’re seeing the medical industry recruiting more workers from other sectors. Of course, they also need to offer the right compensation to attract and retain these workers. We can also see a long term push for more efficiency.

Like almost every other sector, medical businesses are finding a variety of new ways to use new technologies to produce more value from the same labor. Digital note taking and medical records and more automated scheduling systems are low hanging fruit for many medical businesses. I also expect to see more AI-powered tools to help with patient monitoring and diagnoses, over time.

As important as these developments are for the medical industry, none of them have a significant impact on the need for a physical footprint (MOB) or the ability to pay rent.

The labor market squeeze is real, but for MOB investors, it’s a non-factor. Our investors’ capital is safe and we expect continued excellent returns.

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