Demand sees childcare market grow up fast
After the year that was, childcare centres are now firmly anchored among the style of safe recession-proof assets that have become an investor’s top priority. These assets tend to tick more boxes than most including security provided by government support, long-term tenancies and prime locations in strong catchment areas buoyed by an increasing pool of working parents.
Enquiry levels are certainly at an all-time high. Any childcare centre marketed by Burgess Rawson –leaders in this market for the past decade with almost $1.24 billion in freehold investment sales nationally – receives on average 100 to 150 childcare inquiries per campaign. Potential buyers are mostly high net worth individuals or self-funded retirees seeking a secure investment in which to park their funds and – most importantly – delivers higher returns than bank deposit rates in the current low interest rate environment.
Most of the childcare investments that Burgess Rawson sell provide childcare services for children under the age of six. Nationally, companies with the greatest market share are Goodstart Early Learning and G8 Education, followed by Affinity Childcare, Guardian Childcare, KU Children’s Services and Think Childcare.
As recently as five years ago childcare services were still somewhat undervalued. Since then the sector has undergone a complete turnaround not only due to government support but underlying land values. Childcare and early learning centres typically occupy large residential sites within well-located growing catchments or undersupplied prime locations. These factors have helped the sector become an asset class in its own right.
Other chief drivers have been natural growth in both immigration and the general population, more flexible options for parents, greater participation of women in the workforce (now more than 65 per cent), a substantial rise in operators and the generally increasing appetite for investment. The Australian Bureau of Statistics forecasts the proportion of children under 3 to rise 9.9 per cent between 2019 and 20241 – effectively outpacing the growth rate of total population (8.5 per cent). Most importantly, this sector is resistant to being outsourced, sent offshore or replaced by the internet; this is a business that needs a human touch and relies on bricks and mortar.
Bipartisan government support has long been a critical driver of the industry. This was further reflected in the $2.6 billion COVID-19 Response Package granted last year by the Federal government which regards childcare as an essential service. Having affordable childcare available to all levels of community is a fundamental driving force of the post-COVID recovery as it has given parents and care givers the opportunity to work and pump up tax revenues. Total government funding throughout 2020/21 is forecast to surpass $10 billion (IBIS).
Rents within the sector have increased considerably Australia-wide. Average rent per childcare centre place in 2015 was $2002 compared to an average of $2864 in 2019/20, equating to a 30 per cent increase nationally in the last four years2 .
Western Australia and Canberra are proving especially fertile for investors in this market. Since Burgess Rawson sold its first WA centre in 2014/15, average price per childcare centre place has jumped 54 per cent to $38172. Of more than 3400 places that Burgess Rawson leased over the last year to new early learning centres, over 72 per cent were in WA and Canberra.
Childcare is no longer child’s play for the savvy investor. The market is mature, strong and resilient as shown by these Burgess Rawson sales in the last six months:
Harrington Park (Sydney NSW) Rent $144,258 pa Sold $3,105,000 Yield 4.65%
Turramurra (NSW) Rent $289,800 pa Sold $5,650,000 Yield 5.13%
Byford (WA) Rent $203,249 pa Sold $2,980,000 Yield 6.82%
Kelmscott (WA) Rent $330,000 pa Sold $4,790,000 Yield 6.89%
Ashmore (QLD) Rent $457,217 pa Sold $7,620,283 Yield 6.00%
Interested in further opportunities in this increasingly attractive asset class? In our current portfolio Michael Vanstone from our NSW office is marketing an 80-place childcare centre at 26-30 Lawley Street in the Brisbane suburb of Kedron, a family-friendly area 9km from the CBD popular with young aspirational families looking for convenience.
Currently leased to premium operator Kids Club, this investment opportunity ticks multiple boxes, among them a long 15-year lease plus options to 2055, no less than 17 primary schools within a five-minute drive, minimum annual rental increases of 3.25 per cent and an estimated net income is $347,377 (July 2021).
More details – speak to Michael Vanstone, Sydney 0403 580 528
1 Australian Bureau of Statistics (November 2018), 3222.0 – Population Projections, Australia, 2017 (base) – 2066. Available at http://www.abs.gov.au/ausstats/abs@.nsf/mf/3222.0
2 Burgess Rawson Childcare Industry Insights (Released August 2020). The Childcare Sector: 10 Year snapshot Childcare-Report-2020_FA.pdf (burgessrawson.com.au)
3 Burgess Rawson Childcare Industry Insights (Released August 2020). The Childcare Sector: 10 Year snapshot Childcare-Report-2020_FA.pdf (burgessrawson.com.au)