Investor demand for childcare centres heats up

The number of investors looking to acquire childcare centres is on the rise, with buyer enquiries back at the highest levels seen since the market peaked in 2021.

In contrast to most commercial real estate sectors, which have seen buyer demand wane over the past year-and-a-half, childcare assets are proving more resilient.

Across all commercial property types, the total number of enquiries to buy on realcommercial.com.au was 4% lower over the June quarter, compared to 12 months earlier. Enquiries to buy childcare assets, in contrast, were 24% higher.

Enquiries to buy childcare assets were up 24% year on year in the June quarter. Picture: realcommercial.com.au

While we’re unlikely to see transaction volumes return to the level seen in 2021 when the market was buoyed by record low interest rates, this is a clear signal of confidence in the sector.

And when it comes to childcare, there’s plenty for investors to feel confident about.

There were over 1.4 million children using childcare in the December quarter of last year, according to the Department of Education, a figure that grew by 65,270 over 2022 alone.

Enrolments are predicted to continue seeing significant growth over the coming years off the back of higher participation rates, a growing population, and expanded government subsidies.

Institutional investors and real estate investment trusts (REITs) are increasingly targeting childcare assets. Picture: realcommercial.com.au

Childcare centres are also perceived to carry less risk in comparison with other forms of commercial real estate, such as office or retail, that are more closely tied to the health of the overall economy.

These factors are supporting the performance of childcare assets hitting the market and drawing in a broader range of buyers than was seen historically.

While private investors continue to dominate the sector, more institutional capital and real estate investment trusts (REITs) have targeted childcare assets in recent years.

The resilience of the sector and higher buyer demand is supporting the performance of those centres hitting the market. While childcare yields have been softening since mid-last year, as of June, they were still below the levels seen in early 2021, with a median of 5.3%.

Despite the positive outlook, the sector is not immune to headwinds. For many operators, staffing presents a key challenge that can impact the profitability of centres.

While there might be enough demand for a centre to run at full occupancy, it can only do so with sufficient staff. This is particularly an issue in suburbs where housing costs are higher and often out of reach of childcare workers whose salaries sit below the national average.

Even so, childcare assets look well placed to continue outperforming over the coming years. And if the recent rebound in buyer enquiries is any indication, those assets that hit the market will be hotly contested.

Read more on how much it costs to open a childcare centre.