Child care centres continue to deliver strong investment returns

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Despite the collapse of ABC Learning Centres, child care centre investment properties have proven remarkably resilient during the past 12 months according to Herron Todd White.

The report showed that while overall yields have softened by 0.8% from its 2006/07 peak to an average of 8.5% to 9.3%, this is still a better performance compared to the dramatic fall of between 1% and 2% for other types of commercial properties.

Market yields for prime centres- classed as those with above-average occupancy rates of 85%-95% have remained stable at around 8%. Older-style child care centres and those in regional areas are typically achieving market yields of between 8.25% and 10.75%.

The comparative strength of child care centre investment has been underpinned by typically long lease terms, bipartisan support for financial assistance to parents (meaning fee income for centres has been underwritten by the government payments) and government funding of unviable ABC2 centres according to the report.

"Child care centres have held up extremely well as an investment option in a tough commercial context," said Simon Fox, commercial valuer at Herron Todd White. "Australia's high birth rate and rising female workforce participation rate have combined to create significant demand for childcare places for children aged 0-2 years. This has assisted child care operators at a time when some are under financial pressure due to the impact of the economic downturn."

Prime leasehold yields for the business component of a child care centre are currently in the 20-25% range, however, Fox noted that the recent announcement that the majority of ABC Centres will be purchased by not-for-profit syndicate poses a challenge for the child care industry as a whole.

In 2008, Australia had 1.6 million children aged 0-5 years with 25% attending long day care for an average of 19 hours per week according to the Australian Bureau of Statistics. ABS is projecting an increase of 1.2% per annum over the next 15 years. Higher growth rates are projected for Western Australia at 1.9% per annum and Queensland at 1.8% growth per year, the report noted.

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