Report reveals Childcare Centres as fastest growing asset class

CommercialThursday 30 November 2017

Research by childcare market leaders Burgess Rawson shows sector is on the rise, despite tightening yields

Property investors at all levels should put childcare centres right at the top of their list, according to leading property agency Burgess Rawson.

Speaking at the release of a major report on the industry, Burgess Rawson Associate Director – Childcare, Adam Thomas said a number of strong trends were driving growth in the industry.

Key pillars of the sector are government funding, demand for places and increase of workforce participation.

Substantial growth is forecast in Federal Budgets, coupled with rising population. Government policy supports drivers of workforce participation which has a clear and measureable economic benefit.

“We will see more industry consolidation as a key factor into the future. This consolidation will create stronger players who will underpin intrinsic property values through yield compression.” Mr Thomas said.

“Childcare centres have some truly unique aspects that really set them apart from other commercial real estate investments.”

A large part of a centre’s cash flow is Government sourced, the move from the current rebate/benefit system to the new subsidy system will see an increase in funding for lower income families.

“With sharp yields in the current low interest rate environment and excellent lease conditions, childcare centres have become Australia’s fastest growing and most desirable new real estate investment class,’’ Michael Vanstone, Childcare Specialist of Burgess Rawson, said.

Some of the major factors contributing to the attractiveness of this commercial investment class have been identified in the Burgess Rawson report – these include:

• Robust leases which are usually heavily in favour of the landlord, including blanket recovery of expenses, sometimes including structural maintenance

• Exponential rental growth which has outstripped all other real estate sectors

• Centres are highly resistant to digital disruption, unlike many retail & industrial sectors

• Tenants invest heavily in their properties, leading to low levels of relocation, long term leases and high levels of income stability

• Investments are suitable for a range of players including self-managed super funds. Centres range from $1 million through to $20 million

• Rental range has been between $1,500 and $6,000 per childcare place, per year, with metropolitan centres sold this year averaging $3,000 per place

Mr Vanstone said many of these trends had been running in favour of childcare centres for a long time but there was plenty to come for an industry that is still very much in its growth stage.

“It is not only increased government payments that have spurred such growth, the urban sprawl of new suburbs creates constant demand, together with parents seeking a quality early learning environment,” he added.

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Article originally published by Commercial View, click here to view original.