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Child’s play: childcare centre market heats up

  • April 12, 2023
  • by Property Australia

A new report indicates that the childcare centre market in Australia is expected to grow in 2023 due to increased government investment, a growing younger population, and anticipated industry consolidation.

Cushman & Wakefield’s report, titled ‘Child’s Play: An Overview of the Australian Childcare Real Estate Investment Market‘, predicts that investment into childcare centres will remain strong throughout 2023, with several centres expected to be put up for sale in the first half of the year.

Approximately $520 million worth of centres were traded in 2022, which is 30 per cent higher than pre-COVID levels of around $400 million, according to the report.

“We’ve seen investment settle well above long-term averages after a bumper year in 2021. However, the drivers are shifting with investors targeting these asset’s recession-proof qualities like stable long-term leases, rather than the hunt for yield that dominated the past few years,” Cushman & Wakefield Head of National Investment Sales Daniel Cullinane said.

The study shows that increasing demand for childcare services due to a growing population and competition for prime locations has led to an average national rent increase of 47 per cent over the past decade.

Moreover, the demand from high-net-worth individuals, institutional investors, and foreign investors has caused a continued reduction in yields. In particular, the yields for city-based centres have experienced a long-term decline, dropping from 6.8 per cent in 2014 to 4.9 per cent in 2022, while the average yields for centres located outside of cities also fell from 7.2 per cent in 2014 to 5.3 per cent in 2022.

“We’re seeing strong tailwinds across the national market for Childcare centre investment. Investors see favourable fundamentals and can benefit from new subsidies and $4.7 billion in government funding to boost access as demand rises,” Cushman & Wakefield Research Manager, Queensland, Jake McKinnon, said.

“In 2022, the majority of assets nationally traded on sub-5% yields, and we’re expecting assets to continue trading on sharper yields. One factor driving the outlook is the consolidation of assets in a fragmented market, as operators seek to meet demand through acquisition and development activity,” Mr McKinnon said.

The major players in the childcare centre market include Goodstart Early Learning, which holds the largest market share at 10.3 per cent, and G8 Education, which has grown from 17 to 448 centres since 2007, representing 6.4 per cent of the market.

The research shows the majority of the market, 72 per cent, is held by minor or independent operators, which the report said could lead to favorable conditions for merger and acquisition activities.