WA, Qld Childcare Sales Underline Subsector’s Strength

Childcare property sales on opposite ends of the country have underscored the subsector’s strength.

In Perth, a WA investor has acquired a new childcare centre for $5.2 million, making it one of the first modern childcare centre transactions in nearly 12 months for the region.

Located at 73 Kingsley Drive, Kingsley, 19km north of the Perth CBD, the 650sq m centre is fully leased to ASX-listed Nido Early Learning under a 20-year initial lease agreement.

The CBRE Australian Healthcare and Social Infrastructure team of Sandro Peluso, Jimmy Tat, Marcello Caspani-Muto and the WA Metropolitan Investment team, Chloe Mason and Derek Barlow, managed the sale, which achieved a yield of 6.0 per cent.

Peluso said that investors were no longer solely focused on surface-level analysis.

“They are now considering multiple factors, including depreciation, replacement cost, and comparing the return on investment in childcare centers to leaving their money in the bank,” Peluso said.

“When assuming a standard childcare loan-to-value ratio (LVR) of 60 per cent, with suitable interest coverage ratio (ICR) coverage, we are seeing benchmark returns that are 15 to 30 per cent higher on investor capital for newly built centers, once depreciation is factored in.”

Meanwhile, to the south-west of Brisbane, fund manager Clarence Property has sold a new childcare centre to a private Brisbane-based investor for $7.6 million, as the asset class continues to be highly sought after in Queensland.

The 977sq m centre at 1 Brooking Rise, Ripley, 42km from the Sunshine State capital’s CBD, opened in May and sits on a 3378sq m allotment.

▲ The sales of childcare centre at Ripley and, above, at Kingsley in WA notched up yields of 5.4 per cent and 6 per cent respectively.

The 154-place centre is secured by a 15-year net lease to Little Locals Early Learning Group, a privately owned business with eight childcare centres in south-east Queensland

CBRE’s Harrison Coburn brokered the deal off-market, achieving a 5.4 per cent yield on behalf of Clarence Property. 

“The first-time childcare buyer was selected after a targeted off-market process, whereby CBRE approached five active groups off a recent on-market process for Lead Childcare Kallangur,” Coburn said.

“The buyer’s short due diligence timeframe allowed us to move and exchange contracts swiftly, which is a common theme in this sector.

 “While tenant-operator demand is still high, we have seen a significant decrease in the number of new centres coming online given the rising construction costs of the past 12 to 24 months.”

As The Urban Developer reported last month, with economic conditions, labour and material costs, and housing affordability woes making it increasingly hard to get residential projects over the line in terms of feasability, childcare centres are coming into their own.

According to CBRE’s Jimmy Tat, childcare offers hope to the substantial number of developers who have bought a site for a residential project and have realised it is not going to stack up.