Consider investing in childcare centres

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A number of strong trends are driving growth in the childcare centre industry, according to a new report from Burgess Rawson, a provider of full-range commercial real estate services.

The key pillars of this industry are strong government funding, growing demand for locations, and the increase of workforce participation.

“We will see more industry consolidation as a key factor into the future,” said Adam Thomas, associate director of childcare at Burgess Rawson. “This consolidation will create stronger players who will underpin intrinsic property values through yield compression.”

A significant part of the cash flow of childcare centres is government sourced, and the move from the current rebate/benefit system to the new subsidy system will increase the funding available for lower income families.

“With sharp yields in the current low interest rate environment and excellent lease conditions, childcare centres have become Australia’s fastest growing and most desirable new real estate investment class,’’ said Michael Vanstone, childcare specialist at Burgess Rawson.

Some of the factors that contribute to the attractiveness of this investment class include:

  • Robust leases that are often in favour of the landlord, including the blanket recovery of expenses (sometimes includes structural maintenance).
  • Exponential rental growth which has outstripped all other real estate asset classes.
  • Childcare centres are highly resistant to digital disruption, unlike other retail and industrial sectors.
  • Tenants invest heavily in their properties, leading to fewer relocations, longer term leases, and higher levels of income stability.
  • Investments are suitable for an array of players, including SMSFs.
  • Rental range is between $1,500 and $6,000 per childcare centre each year, with metropolitan centres sold this year averaging $3,000 per place.

According to Vanstone, there is still plenty of growth left in the industry. “It is not only increased government payments that have spurred such growth, the urban sprawl of new suburbs creates constant demand, together with parents seeking a quality early learning environment,” he said.

The monumental shift in parental requirements and service needs have also led to strong competition between centres. “This new focus on cleanliness and maintenance has ensured that the centres are kept to a very high level compared to many other commercial properties, resulting in increased rental stability and long leases,” Vanstone said.

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