Record yields as investors flock to childcare centres

Thursday 7 April 2016

Written by Adrian Ballantyne, Real Commercial

Predictions that childcare centres will become Australia’s most sought after commercial property asset class are proving prophetic, after record sales at Portfolio Auctions in Sydney and Melbourne.

Commercial agents Burgess Rawson sold six childcare centres worth a total of $17 million across two days of auctions, with one centre in Chatswood selling for $2.41 million on a record low yield of 3.9%.

The sale eclipsed the previous record yield of 4.32% for a Sydney childcare centre, which was achieved for a Haberfield property.

Another Sydney childcare centre in Freshwater found a buyer at $4.86 million on a 6.1% yield, while one in Fairfield sold for $2.16 million at 5.1%.

In Melbourne on Wednesday, a Langwarrin centre leased to childcare giant G8 sold for $1.71 million on a 5.26% yield and a centre leased to Think Childcare in Glenroy fetched $3.073 million.

A sixth centre in Littlehampton, South Australia, was sold prior to auction for $6.86 million.

Burgess Rawson sales and leasing executive Adam Thomas says demand for places in childcare centres, as well as the value of the land they sit on, is driving prices skyward.

“I think it (the Chatswood sale) exceeded everybody’s expectations, but all of these strong results just comes down to the inherent value of the business,” Thomas says.

It’s an industry supported by demographics and our expanding population, with a significant amount of government funding

“We’re continuing to see some pent up and strong demand across the sector.”

“You’ve got generally long, secure leases to national tenants and you’ve got high underlying land values. That was evident with the parcel of land in Chatswood. It underpins the security of the freehold at the same time.”

“It’s an industry supported by demographics and our expanding population, with a significant amount of government funding.”

Other properties also achieved strong results over the two days of auctions, which saw almost $60 million worth of property sold. The overall clearance rate of 74% represented a significant lift on the 50% of properties sold at Burgess Rawson’s first auctions of the year in February.

Bidders from Melbourne, Sydney and Tasmania went head to head for almost 30 minutes to determine who would own a Woolworths Caltex service station in Clayton, Victoria, with a local buyer eventually paying $4.4 million for the Wellington Rd property on a tight 4.94% yield.

A Frankston cafe sold for $1.151 million on an even smaller 4.6% yield, while a highly touted IGA supermarket and liquor store next to a new Mirvac housing development in Wantirna South was snapped up for $5.21 million on a 5.53% yield.