Childcare centres red hot as yields tumble
The only thing more in demand than places at childcare centres might be the centres themselves, commercial agents say.
Multiple agencies are reporting significant spikes in interest in childcare facilities nationwide, with some labelling them the most sought-after asset class in the commercial property marketplace, driven by evidence that some 50,000 childcare places are required to accommodate Australia’s population growth over the next decade.
The reports come after the sale of numerous childcare centres on record low yields, including a Camberwell facility that sold to a Chinese investor for $6.82 million on a 5.05% yield and more than $400,000 above its reserve price.
The deal for the 2065sqm property at 164-168 Warrigal Rd was brokered by Savills’ head of childcare investments Julian Heatherich, who says the current level of interest and enquiry for childcare assets is unprecedented.
“We currently have more interest for childcare investment than any other asset class. The property drew well over 100 enquiries with seven out of ten formal offers coming from offshore,” Heatherich says.
“Childcare has really come of age as an asset class in its own right and this sale presents unequivocal evidence.”
The property was sold subject to a 10-year lease to Affinity Educational Group, with an additional 10-year option, and attracts annual rent of almost $345,000.
The positive sentiment surrounding childcare is echoed by commercial agents Burgess Rawson, who are seeing yields plummet as competition heats up.
Childcare has really come of age as an asset class in its own right and this sale presents unequivocal evidence
Director Dean Venturato says yields are nudging record levels.
“We have recorded a drop in yields of 1.9% for both metro and remote regional locations to an average of 6.25% and an increase in median values of $900,000 to $2.75 million per centre,” Venturato says.
“Buyers can’t get enough of childcare centres and they are voting with their dollars. Our auction attendances always spike when we offer childcare centres for sale.”
Burgess Rawson recently sold a 92-place centre in the regional Victorian hub of Geelong for $5.5 million on a yield of 6.1%, which is being touted as both a sale price and yield record for a regional centre.
And Venturato says the record yield for a Sydney childcare centre – the 4.32% achieved for a Haberfield property – may fall next month when a Chatswood centre goes under the hammer.
“I wouldn’t be surprised to see it go under the 4%,” he says.
Burgess Rawson’s Sydney childcare specialist Michael Vanstone says consistently low yields of 5% had prompted a number of owners to sell up little more than 12 months after buying into the industry.
Two centres in Bateau Bay and Beresfield both sold in February after last changing hands in late 2014.
“This time around, the centres attracted 220 enquiries and we issued 55 contracts. That’s 30% more than previous and they sold for yields that were half a percent stronger than 15 months ago,” Vanstone says.