The future looks bright for childcare centre investment

CommercialTuesday 27 October 2015

There’s no doubt that the demand for quality and affordable childcare places is unlikely to slow down any time soon, especially in our capital cities.

This demand is being driven by a number of factors, including the high cost of living, the desire of many more women to maintain careers than in the past, and the government’s position that female workforce participation is good for the economy. In addition, according to IBIS World, a baby boom is coming – with the rate of births expected to increase by 6.4% over the next few years.

The combination of these factors means that in many families, both parents work, and that means they also need someone to care for their children. And with not all families having ready-and-willing grandparents or other relatives to take on the role of child-carer every day of the week, the need for families to secure a childcare place is high. This applies not only to babies, toddlers and pre-schoolers, but also to school-aged children needing care before and after school hours.

Budgetary matters

Under the proposed federal Budget (to be implemented from 1 July 2017), families earning up to $65,000 will be able to receive up to 85% of the cost of their childcare back in subsidies. This rate reduces with higher incomes, with families earning over $170,000 potentially receiving 50%.

This may push up demand for childcare even further, and is also likely to create some great business opportunities for childcare providers owners to make healthy profits. Demand for services is also likely to be ongoing rather than ‘seasonal’ as might be the case with other types of commercial ventures.

Effect on childcare commercial property investment

The demand for childcare services and the opportunity for business profits also created a positive environment for childcare freehold investing.

Whether you run the actual business or not, owning a childcare centre comes with the potential for long-term leases and healthy rental yields – which are generally in circa 6%. The potential for positive capital growth is also good, although it will of course depend on a number of factors – such as the age and condition of the centre and its location.

What to look for in an investment property

For yields to be good, the childcare business itself needs to thrive. This means that as well as looking at the quality of the building and its location, you need to consider other factors, such as the demand for services and local demographics.

A centre in a region with a healthy socio-economic status, plenty of young families and a high demand for childcare places, is more likely to provide the capacity for capital growth and positive rental yields than otherwise. Of course, it is also likely to cost more, so the issue to focus on is the potential for a positive return on your investment.

In any case, if you wish to buy investment property in the childcare sector, it remains important to do plenty of research and to seek sound professional advice before making your decision.