There has been some talk of pockets of oversupply of childcare facilities in metro and regional locations – a consequence of playing catch-up with demand – and to a lesser extent a small proportion of badly positioned centres by overzealous developers.
However, we believe this will be soaked up in the short to medium term as supply delivery slows from mid-2019, alongside the increased demand created by rising workforce participation nationally.
Our view is supported by annual growth in the Australian population of 1.6%, as recorded in 2017 (India’s, for example, grew only 1.1%). On top of that, there appears to be no slowing down in the number of immigrants coming into the country, which currently sits at over 186,000 annually.
Following are a number of reasons why the foundations of childcare investments have not changed.
1. Increased government funding
Both sides of the Federal Parliament support ongoing funding to make childcare more affordable and accessible, and to assist families by growing work participation levels. Additional Commonwealth funding support for three-year-olds is also likely to be introduced in 2019, increasing affordability of childcare, making it even more accessible for parents across the country.
2. Early-learning subsidies
Since the introduction of the new Child Care Subsidy in July 2018, operators have confi rmed the increase in takeup of childcare places, which is pushing up occupancy levels.
3. Population growth
Australia is now home to 25 million people, and this is expected to grow to 35 million by 2056. Increasing numbers of children will continue to fuel the need for more childcare places.
4. Sensible alternative to residential investing
Not only do childcare assets typically have much higher yields than residential investments, but they also often have residential zoning in place that supports the underlying land value.
5. Internet-resistant service
Operating a childcare centre depends upon a service provided within a bricks-andmortar property and is delivered by staff with a personal touch. It cannot be replicated or replaced by internet activity or outsourced off shore, let alone handled by the likes of robots.
6. Rising workforce participation
ABS fi gures show a historic high of 60.5% of females now in the labour force. This rise in female participation provides a long-term opportunity for the childcare industry, with increasing numbers of parents opting to use formal childcare services while they pursue employment opportunities.
7. Better buying opportunities
The low cost of funds expected to remain in place well into 2019 means buyers can benefi t from a higher margin between borrowing rates and attractive net yields
8. Robust lease terms
Childcare assets tend to have long secure leases in place with built-in annual rental increases, providing a hedge against infl ation.
Childcare centres remain a sustainable and sensible investment choice backed up by strong fundamentals. This industry will not fall away due to internet disruption, is fully supported by the government, and will continue to grow with increases in the population and parent participation in the workforce.
Michael Vanstone is a commercial leasing and sales specialist who formerly owned and operated a highly successful childcare centre. As a sales executive at Burgess Rawson Sydney, he specialises in his passion – the childcare sector
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