January 12, 2023

The good news… Inflation is down a bit over the last few months.

The bad news… it’s still remarkably high.

+6.5% year-over-year from December ‘22 versus December ‘21. That’s a BIG number.

The Fed is doing all they can to signal continued hawkishness… but, of course, they also want to avoid triggering a recession.

It’s a delicate balancing act for the Fed Chairman, Jerome Powell. And there are many factors totally beyond his control… including: ongoing stimulus payouts, energy prices, and supply chain frictions.

For MOB investors… They worry less about inflation because their MOB investments are a terrific inflation hedge in their portfolio.

Commercial real estate is considered a reliable hedge against inflation… and we’re now seeing that in reality.

The immediate place we see it is with rising rental rates. Our recent renewals have been bumped up to account for inflation. It helps ease negotiations that our tenants (medical offices) are seeing continued strong revenues, and inflation within the healthcare industry is nearly always outpacing inflation in the general economy.

Inflation has also been a continued damper for the construction industry. It’s been 2 years of double digit price growth for construction supplies (due to pandemic driven factors)... and now the CBRE is predicting a 14% year-over-year cost increase. Less MOB construction means fewer options for tenants to move… and less bargaining power.

MOB continues to be an unsung star performer for investors.

MOB was a top performer during the pandemic… while other areas of Commercial real estate were decimated. Alliance did not miss a single rent payment.

And I believe we’re about to see that MOB is again a top performer during this bout of inflation, and possible upcoming recession.

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