Here, we summarise some of the key factors underpinning the sector’s burgeoning success.
1. Stable Income Stream.
Childcare centres are typically occupied by well-established operators who invest heavily in their properties. With “sticky” tenants, a particularly attractive feature of investing in childcare assets is the stable income stream generated from long-term leases. According to this report, new leases typically range from 15-20 years, with annual increases above the inflation rate and extensive option periods.
2. Higher Returns.
Childcare assets offer higher returns over the medium to long term than other real estate investments. Exponential rental growth in recent years has surpassed all other real estate asset classes with leases generally calculated based on the number of permitted childcare spaces. Other insights indicate that the yield on property sales is sitting strong at between 4.65 and 6.89 per cent.
3. Strong Underlying Land Value.
Centres typically occupy large residential sites with relatively high underlying land values.
4. Increasing Demand.
An increase in the number of women entering or returning to the workforce, combined with growing recognition that quality early childhood education gives children the best possible start, continues to fuel the sector.
5. Strong Government Support.
Government funding to the sector has increased significantly in recent years, allowing families to receive substantial subsidies. This, too, continues to drive demand.
Unlike many other commercial real estate assets, childcare centres appear to be immune to the financial challenges caused by the COVID-19 pandemic. In these unprecedented times, the need for childcare (an ‘’essential service”) remains high. Moreover, and perhaps more importantly, the sector is resistant to being outsourced, sent offshore or replaced by the internet.
7. Quality Operators in Well-designed Spaces.
This is critical to the sector’s ongoing success. Working with quality operators and owners, our projects have yielded impressive results – creating positive learning environments while maximising return on investment. Recently completed projects have attracted 30-year lease agreements and produced higher-than-average returns, with tenants paying between $5,000 and $6,000 per child.