One of the important practices of landlords is to keep an eye on what financial challenges tenants have to face. Healthcare tenants have long been prized. The services are not readily tossed to the side, they have relative composure in the face of inflation, and they have understandably strong credit profiles.
But the times are showing various financial pressures on healthcare tenants. Not that healthcare organizations have suddenly fallen into a dump — far from it. But things have changed, and fiscal ease cannot be taken for granted.
"Their margins are shrinking," Shawn Janus, national director of healthcare at Colliers, tells GlobeSt.com regarding hospitals but also healthcare in general. "The biggest piece of that is labor. The cost of labor is a huge factor [as is] finding labor." Other costs are rising as well. The price of supplies, equipment, and information technology.
Recommended For You
"Unfortunately, the reimbursements they're getting are going down," Janus adds. "Depending on where they are in their contract negotiations, they may be getting paid at a lower rate [than they were]."
These are some of the reasons that help explain all the consolidation in the industry. The larger the organization, the more it can amortize overhead costs across larger operations and volumes of treating patients. It's the old economies of scale argument that is part of nearly all corporate mergers.
Then there is the bulk for the sake of negotiation part. "They have more leverage potentially" both with payers and landlords, Janus says.
It is true that patient volumes keep increasing, as do patient demands for services, but it all brings up additional challenges. "One is do you have the staff to service the growing population," explains Janus. "That obviously becomes a big issue. Then on the development side of the business in healthcare, there are a lot of hospital systems that know they need to expand." Again, that means more staff, but the modeling has to work out. "Labor shortage, labor cost, is the biggest thing that keeps the leadership up at night."
Hospital executives also face challenges in the mix of pay: private, Medicare, and Medicaid. Years ago, healthcare providers lost money on Medicaid, broke even or made a little on Medicare, and then made the bulk of their money on private pay. "Now they actually lose a little money on Medicare," Janus says. That puts even more pressure on private.
All the concerns expand how CRE companies have to consider current and potential healthcare tenants. "Ideally, you want either a single tenant building with a high-quality tenant or multi-tenants building with an anchor." And the most creditworthy, with good growth perspective, and leadership teams that will be able to bring them into the future.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
