This article is from the Australian Property Journal archive
CHILDCARE operators area remaining positive despite a 20% surge in rents over the past six months, on the back of strong and growing demand from working parents and ongoing government support.
Higher development costs have been a key factor behind the increases, according to a report by The Leasing Agency, but the Melbourne firm has still struck 14 new leases worth more than $4.5 million and covering 1,300 new places across Melbourne and regional areas over the last 12 weeks.
“We have seen a whopping 20% increase in childcare rents in the last six months but childcare operators have told us they can sustain that increase because of the continued demand from working parents, including post-covid pressure on parents to return to office work, both natural and immigration driven population growth, and of course strong government support,” said managing director of The Leasing Agency, Terence Yeh.
Operators that have committed to new leases include Kidscape Childcare, Little Stars Early Education, Equip Childcare, Lil’ Angels Family Day Care, Bright Beginnings Early Centre, Imagine Childcare , G1 Early Learning, Junction Village Early Education and Care, and Gumboots Early Learning, while local and international developers, a Perth based syndicate, and some first-time local investors feature among the landlords.
Demand for childcare places along with attractive lease profiles, including 10 to 15-year terms, rental growth, and a high level of tenant maintenance of the property have been driving a surge in interest from both private and institutional investors and developers.
“This is a very strong sector with very sound fundamentals and that has brought increasing interest from established developers and investors, but there is also heightened competition from a new class of first-time childcare investors and developers seeking recession-proof investments,” Yeh said.
“With the current average demand to supply ratio nationally at 2.8 – meaning for every licensed place there are 2.8 children (aged 0 to 5) – the very strong demand for places looks set to continue for a while yet and that means we will require many new centres.”
The federal government has already committed to spending $4.5 billion to deliver more affordable child care, including increasing Child Care Subsidy (CCS) rates from July 2023 and lifting the maximum CCS rate to 90% for families earning $80,000 or less.
According to The Leasing Agency’s childcare specialist, Ali Usman, despite the increasing market share of the larger players, small childcare operators, including family businesses, still held a significant and viable place in the industry.
“Renowned brands such as Busybees, Guardian and Affinity are expanding at a rapid pace – even to the extent of buying a portfolio of centres to gain a foothold into an area – however smaller operators are also maintaining their market position and are generally performing well.
“With many parents preferring to send their children to smaller, family-owned, businesses that offer perhaps a more personalised experience and care that their child receives, the outlook for those operators also remains bright,’’ Mr Yeh said.
The smaller players reportedly account for over 70% of ownership in 2023 while the largest players, G8 Education and Goodstart Early Learning, account for about 16% of the market. The remainder mid-tier operators include Busybees and Guardian among others.
Usman said that while rising rents was an ongoing issue, attracting and retaining qualified staff in the current employment market had become, for many operators, a more significant concern.
