[+] Playing to Win: Childcare Centres Commercial Sector’s Star

Childcare centres are proving to be hot property as growing government subsidies bolster elevating occupancy levels across the country. Transaction data reveals that 20 Australian childcare centres were sold between May and July this year. Prices ranged from $1.2 million for a facility in Perth to $14.9 million for a Sydney centre. Cushman &amp; Wakefield predicts that more centres will hit the market in the coming months. Research by the global commercial real estate services firm found that in 2022, $520 million in centres were traded, which was 30 per cent above pre-Covid averages of about $400 million. The research also reveals competition for quality locations has led to rents rising 47 per cent on average nationally during the past decade. “We’ve seen investment settle well above long-term averages after a bumper year in 2021,” Cushman &amp; Wakefield head of national investment sales Daniel Cullinane says. ▲ This centre, the Montessori Academy in Forest Hill, Melbourne, sold for $6.9 million, showing a yield of 5.1 per cent by Burgess Rawson. “However, the drivers are shifting with investors targeting these asset’s recession-proof qualities that include stable long-term leases, rather than the hunt for yield that dominated the past few years.” Renewed government subsidies for operators and consumers, solid population growth, robust demand for childcare services nationally and the unemployment rate falling to 3.5 per cent amid rising cost of living pressures is fuelling strong interest in the sector from the market. Investor demand intensifies Burgess Rawson sold $43.5 million in early education centres in May as investor demand for this asset class continues to intensify. Meanwhile, Stonebridge listed $13 million in childcare assets in NSW, Victoria and Queensland in July, noting a heightened level of enquiry in long-term leased assets from Asian buyers. “Early education properties are predominantly sought after by high-net-worth investors seeking secure, long-term bricks and mortar assets,” Burgess Rawson director Michael Vanstone says. “The Federal government’s confirmation of additional childcare support only strengthens demand for this asset class” In Sydney, five childcare development-approved sites in the city’s west sold in 30 days by Ray White Commercial Western Sydney. Located at Rooty Hill, Bankstown, Guildford, Auburn and Toonagabbie, the sites sold for a combined $14.2 million. ▲ A render of the childcare centre approved for a site in Rooty Hill, NSW, one of five sold in a 30 days. The sites were acquired by various childcare owner operators and represented a combined 421 approved places. The sites offered from 58 to 120 places. As well, a childcare centre in the inner city suburb of Rosebury sold after aggressive bidding for around $5 million. “Owner operators are keen to cut out the development approval and pay a premium for already approved sites that can start straight away,” Ray White Commercial Western Sydney director Joseph Assaf says. He confirmed that Ray White Commercial Western Sydney has transacted more than $74 million worth of property within the childcare sector to date. “Demand has been very strong, and that led to competitive bidding in the case of the Auburn and Toongabbie sites, which were sold at auction, while multiple offers were received for Rooty Hill, Guildford and Bankstown. including short settlement terms to secure the sites,” Assaf says. “Driven by the government’s strong support for the childcare sector and the coming increase in subsidies up to 90 per cent from July 2023, childcare operators are aggressively expanding their businesses to capitalise on the sustained demand.” Strong occupancies provide certainty Market analysts note that strong occupancy levels provide some certainty in returns over the longer term, despite difficult economic headwinds. “These assets are typically held in high regard by investors seeking well-maintained facilities, which can hedge against possible changes to the cost of finance, Ray White head of commercial research Vanessa Radar says. ▲ Ray White head of commercial research Vanessa Radar. “Despite the elevated demand for these assets, location will remain key to ensure the long-term prosperity of the asset and its stable, ongoing income stream,” While transaction volumes for established assets are down, Radar points out that there has been there has been an uptick in development assets coming to market this year. “A combination of higher financing costs together with elevated building rates has put pressure on some developers and vendors, causing them to reconsider their future development plans,” she says. “The strong population growth experienced across the country has resulted in many of these developments able to secure pre-commitment tenants and leasing activity has seen improvement.” The future of the asset class looks bright, with research by Colliers showing demand for essential services including childcare only set to grow due to their better resilience to economic challenges. “The surge in demand for childcare services as a result of population growth and accessibility of childcare services has caught the attention of investors, who see potential for stable financial returns and profitability in well-run childcare centres,” Colliers Queensland Investment Services executive Sam Polichronis says. ▲ This centre sold for $6.17 million on a 4.88 per cent yield in Rochedale South, 20km south of Brisbane. So far in the Sunshine State this year, a childcare centre sold for $6.17 million for a 4.88 per cent yield in Rochedale South, south of Brisbane; while at Robina on the Gold Coast, a centre sold for $8.8 million for a 5.43 per cent yield, Polichronis confirmed. “With the economic slowing in 2023, sales volume remains low, but the market appears to be on track for a bigger year than in 2018 and 2019, with roughly $18 million in transactions changing hands in the first quarter of 2023,” he says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Playing to Win: Childcare Centres Commercial Sector’s Star

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