When investing feels like child’s play
As Australia’s fastest-growing real estate investment class, childcare centres have emerged as highly desirable commercial property assets over the last five years.
The volume of childcare centre investment sales has grown tenfold while cap rates have taken a positive step in the other direction, falling from 7.6 per cent to 5.6 per cent, with premium centres selling for under 4 per cent in the Sydney metropolitan area.
Childcare centre investments are popular for a number of reasons. Firstly, they are unaffected by the internet and immune to digital distruption. Secondly, they benefit from increasing levels of demand from dual working parent families who are on the hunt for safe, reliable care for their kids. Thirdly, tenants are usually high profile chains and therefore offer stable tenancies for investors seeking steady long-term income.
And finally, with the new Child Care Package and updated Child Care Subsidy set to launch in July, Government continues to be favourable to the sector.
As a result, childcare centres are less vulnerable to cyclical property variables and often
perceived as a stronger long-term income prospect – a ‘set and forget’ investment.
Increasing competition amongst operators and corporatisation of the industry has resulted in a higher level of service being offered – and a higher standard of expectation from consumers. Beyond simply offering care, parents pursue providers who can enhance their child’s development as a first step towards success in later life.
Tenants are investing heavily in maintenance and onsite infrastructure to support a greater focus on early childhood education. This is reflected in a change in terminology, with childcare centres now known as Early Learning Centres. These centres are offering innovations such as higher levels of curriculum, language classes, food preparation skills and even the installations of pools for ‘learn to swim’ classes – infrastructure funded by the tenant!
The future looks bright for the childcare industry, with the total number of children attending care across Australia has growing by 29.8 per cent since 2011, whilst the number of Long Day Care (LDC) childcare centres has increased by only 15.8 per cent. Government funding is favourable, currently set at $8.8 billion and forecast to grow to over $10 billion by 2020.
Childcare centres often maintain favourable locations, a key driver for business growth and property value. Paired with long-term agreements with tenants motivated to support property maintenance, this is one of the most stable asset classes in Australia today.
Michael Vanstone is the childcare specialist at Burgess Rawson.