Rising Rents & Sharp Yields Ahead for Childcare Centres

Australiaโ€™s childcare centre market is poised for growth in 2023, with increased government investment, growth in the nationโ€™s younger population and expected industry consolidation creating a positive outlook for the asset class, a new report shows.

According to Cushman & Wakefieldโ€™s Childโ€™s Play: An Overview of the Australian Childcare Real Estate Investment Market, investment into Childcare centres is expected to continue strongly through 2023 with a number of centres expected to hit the market in the first half of 2023. This followed $520 million in centres traded in 2022, 30% above the pre-covid averages of approximately $400 million.

Cushman & Wakefield Research Manager, Queensland, Jake McKinnon, said: โ€œWeโ€™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.โ€

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

The research reveals that strong demand for childcare services amid sustained population growth, and competition for quality locations has led to rents rising 47% on average nationally over the last decade.

Demand from high net worth, institutional, and foreign investors has also contributed to ongoing yield compression. Yields for city-based centres continued their long-term decline, falling from 6.8% in 2014 to 4.9% in 2022. For centres located outside of cities, average yields fell from 7.2% in 2014 to 5.3% in 2022.

โ€œIn 2022, the majority of assets nationally traded on sub-5% yields, and weโ€™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,โ€ McKinnon said.

Goodstart Early Learning has the largest share among the major operators, with 10.3% of the market. G8 Education has expanded rapidly, growing from 17 to 448 centres since 2007, representing 6.4% of the market. In contrast, the research shows that 72% of the market is held by minor or independent operators, creating favourable conditions for M&A activity.

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