This article is from the Australian Property Journal archive
DEMAND for childcare facilities continues to pick up amongst high net worth investors and Australian real estate investment funds, in line with the growing population and workplace participation.
According to the latest Colliers Premium Investments National Research Report, confidence in the childcare market is lifting amongst a wide range of investors, after various challenges to the sector since the onset of the pandemic.
This after 2023 saw highest level of childcare sales with a total of $389 million across 83 transactions, nationally. Reflecting a 9.8% increase from 2022.
With yields typically ranging between 5%-6% in 2023 and long-term lease terms of typically 12-15 years.
Childcare assets recorded the second largest proportion of sales activity across the premium investment sectors over the last 18 months and accounted for 18% in 2023 and so far over 2024.
Buyer activity hasn’t been quite as strong over the first half of 2024, with a little less than 30 transactions for a total of $134 million.
Earlier in the year, one of Victoria’s largest childcare centres, The Explorers Early Learning centre in Nunawading, changed hands for $12.8 million.
The asset type typically boasts secure leases, long WALEs, stabilised assets, government subsidies provided, industry support, strong rental growth and are often strategically placed on well-located sites.
“The childcare market has a positive outlook and remains appealing to investors. With strategic direction, childcare assets can yield high returns. Workforce growth is expected due to higher staff-to-child ratio requirements, and is underpinned by government initiatives,” said Jordan McConnell, national director and head of premium investments at Colliers, Australia.
“Premium centres offering niche services like medical care, fitness and language classes as well as other extra-curricular activities are on the rise, in turn boosting revenues. We have seen enquiry from investors seeking sites in undersupplied regions, especially newer developments with better facilities.”
According to Colliers, despite the positive outlook and range of opportunistic investors in the market, many investors are currently adopting a wait-and-see approach due to the high borrowing cost.
“Investors are shifting focus towards more secure defensive assets which provide security of tenure, covenant and projectable long-term returns,” added McConnell.
“As such, we expect continued heightened demand across these specialised asset classes moving forward with these defensive assets becoming highly desirable options for private and institutional purchasers.”
Demand is particularly high amongst newer centres with high-quality lease covenants to experienced operators in locations with key demand fundamentals.
With Australia’s childcare industry forecast for revenue growth of 6.2% in 2023-24 and 3.1% per annum over the five years to 2028-29 to an estimated $20.3 billion nationally, according to IBISWorld.
“The recent surge in demand for childcare services across Australia has been driven by population growth and more parents entering the workforce, which has attracted significant investor interest,” said Joanne Henderson, national director of research at Colliers, Australia.
“As of December 2023, there were approximately 1,512,800 children under the age of four in Australia, representing 5.6% of the total population (ABS). Western Australia (5.8%) and NSW (5.7%) had the highest proportions of children under four.”
With the three years to March 2023 seeing the number of children in childcare up 4.7% to 919,569, according to the Department of education.
“As the industry evolves and population forecasts rise, future demand trends become clearer. Increasing demand for childcare services boosts the number of daycare facilities nationwide in particular for QLD, WA and NSW,” added Henderson.
“A growing population in these states drives the need for essential services, leading to greater demand for real estate to support childcare centres. Building owners should look to incorporate facilities in their buildings as a reliable income source and capital growth.”
Despite investor interest, a Productivity Commission report from 2022 revealed quality standards of childcare centres have fallen in Australia, as spending on early childhood education falls in many states and territories.
