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A look at the childcare sector: Where should I put my cash for good returns, low volatility and long-term stability?

Industry and retail super funds are reporting widespread losses this financial year, the banks will give you 1.25% for 12 months, or you could invest directly in the share market, but who knows if you will back a winner.

With constant negative media around recessions, COVID-19, unemployment and general impending doom, it would be easy to believe that everything has dropped, and that losses are everywhere.

However, that is not the case; many parts of the commercial property industry are as strong now as they were pre-COVID. The Burgess Rawson Portfolio Auction on 24 June proved that in spades.

Burgess Rawson is the market leader in the childcare sector and is well-placed to monitor prices and market activity. The data shows that childcare yields have held firm regardless of the challenges of COVID-19. For instance, our sale of Bluebird Education in Cranbourne East in October 2019, and the sale of Sparrow Early Learning in Tarneit in March 2020 can be directly compared to the sales in this most recent auction campaign. The June campaign resulted in the sale of Wallaby Childcare in Epping and Imagine Childcare in Werribee. The location, licensed places, price per place and tenure are all comparable.

So how did COVID-19 affect childcare yields from October 2019 to June 2020? The answer – it didn’t. The respective yields were Cranbourne 5.98%, Tarneit 5.80%, Werribee 5.86% and Epping 5.99%.

What does this show for commercial property? It reiterates that the fundamentals of commercial property are stable, the market has held up during COVID-19 and that long-term stability is critical in these uncertain times.

Compare these returns to the performance of the share market, or maybe your industry super fund in the past six months, and the results speak for themselves.

So why has childcare as a sector held up, or even increased? It comes down to the strength of childcare as an investment class;

  • Both sides of Parliament have shown their support for the childcare industry over many years. The economic return of workforce participation far outweighs the cost to assist in childcare funding. COVID-19 has reiterated the importance Government places on this sector with some of the earliest specialist assistance packages directed to the industry. For instance, from 13 July 2020, the Child Care Subsidy (CCS) and Additional Child Care Subsidy (ACCS) will recommence, along with a range of new measures to support the sector and its families through the transition, including a relaxed activity test for families and a new Transition Payment for providers.[1]
  • The continued low cost of money in what is a relatively stable economic and political environment has led to unprecedented yield compression for quality assets.
  • Childcare property investment is realistically attainable across a greater cross-section of the commercial investor community than any other market sector.
  • Robust landlord-friendly lease terms, including blanket recovery of landlord expenses.
  • Long leases with annual fixed growth.

To discuss our upcoming opportunities or to divest your childcare centre while the market is strong, do not hesitate to reach out to me.

[1] https://www.dese.gov.au/covid-19/childcare/childcare-faq

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