Kids Play Turns Big Business
The business of providing care and education to our young has become a standout success during a year filled with economic turmoil. Childcare centres are one of the fastest growing asset classes with average sale prices rising from $2.077 million in 2011/12 to $4.171 million in 2019/20, with market leader Burgess Rawson reaching the milestone of over $1 billion in childcare freehold investment sales nationally in June this year.
“Five years ago childcare was probably undervalued,” said Michael Vanstone, Associate Director Childcare Specialist for Burgess Rawson in NSW. “Now combined with increasing government support plus underlying land values it has matured and become an asset class in its own right.
“I firmly believe childcare will provide the foundation of Australia’s economic recovery this year and support the economic growth into our future with secure investments like childcare being in high demand,”
“The ongoing government funding support to the childcare sector validates the importance of the industry to the economy and the appeal it has to investors wanting secure long-term returns.”
Inquiry levels are also robust. “Whatever we have on the market receives massive attention – from 70 to 170 inquiries” Mr Vanstone said. “We actually received 175 inquiries for one centre we have on the market in Mosman. It’s simply the high net worth individuals and mum and dad investors trying to secure their money.”
Analysis of key trends over the past decade by Burgess Rawson reveals many positives. In the past 10 years yield compression was 46.8 per cent across the country led by NSW with 87 per cent. While there was a substantial increase in operators throughout 2014 leading to a diversity of tenants, since 2017 this has consolidated as operators look to achieve economies of scale.
Rents have increased across Australia. Average rent per childcare centre place in 2015 was $2002 compared to today’s average of $2864 per place, equating to a 30 per cent increase nationally in the last four years.
Both Western Australia and Canberra especially are proving fertile for the sector. Since Burgess Rawson sold its first WA centre in 2014/15, average price per childcare centre place has jumped 54 per cent to $3816.69. Of more than 3400 places that Burgess Rawson leased over the last year to new early learning centres, over 72 per cent of these were in WA and Canberra.
Why Investor & Operators Like Childcare:
1. Federal and state governments show their continued support for the childcare industry as the economic return of workforce participation far outweighs the cost to assist in childcare funding. At the beginning of the pandemic, support was provided immediately through the Early Childhood Education and Care Relief Package which granted fee-free childcare for families. About one million families were able to take advantage of $1.6 billion worth of assistance. The sector’s 200,000 workers also benefited from more than $1 billion in JobKeeper payments. The latest show of support has been in Victoria where on Sunday the government announced a $300 million package providing support to parents struggling to pay childcare fees as a result of the state’s second wave as well as childcare providers.
2. Female workforce participation level now over 65% has strengthened demand for childcare. “Over 60 per cent of mum and dads are both working so children is on the up simply for that reason,” Mr Vanstone said.
3. Robust landlord-friendly long lease terms, including blanket recovery of landlord expenses, with built-in fixed rental growth.
4. Strong underlying land values given the sites are large and well located within growing residential communities, supported by complementary demographics.
5. Internet resistant: childcare has a personal touch, dependent upon the service being provided within bricks and mortar real estate and cannot be replaced by internet activity or outsourcing to robots or offshore.
6. Provides a sensible alternative to residential investing: childcare assets typically yield much higher than residential investments and they often have residential zoning which supports the underlying land value into the future. “Childcare property investment is realistically attainable across a greater cross-section of the commercial investor community than any other market sector,” Mr Vanstone said.
Looking to build a childcare centre from scratch?
Mr Vanstone’s most salient pieces of advice are to perform due diligence when embarking on a location search, and check plans with the powers that be. “Make sure the supply and demand metrics are in balance for the location you are considering,” he said.
Secondly, run design concepts before the necessary people (read local council) first. “Be keenly aware that you have to work with the council and work within the streetscape,” Mr Vanstone said. “A design may look amazing but in the end the council has the final say. For this reason it is always a good idea to have a pre-DA meeting with the council before you go down the road of getting the DA approved. Then you know exactly how to proceed.”
Michael Vanstone, Burgess Rawson Sydney 0403 580 528
Article courtesy Bronwen Gora, CPG