- Childcare centres are often defensive assets with strong and stable incomes
- Lj Hooker Commercial Perth alone has managed over $60m of childcare centre sales over the past 20 months in WA
- Sale yields have tightened with demand so high
Investors are poised to continue their pounce on childcare assets across Australia, thanks to the federal government’s support of the sector, which boasts defensive assets with strong and stable incomes.
Following their election earlier this year, the Albanese Labor Government has implemented its election policy to increase childcare subsidies for families earning less than $530,000 a year, which was formally included in the October budget delivered by Treasurer Jim Chalmers.
The policy is expected to have an ongoing cost of at least $1.7 billion annually.
Jake Wallman of LJ Hooker Commercial Perth said his agency alone had managed over $60 million in childcare centre sales over the past 20 months in the state. He said investors had been lured by long lease terms, centres’ status of being required social infrastructure and attractive yields.
Mr Wallman noted that there had been a structural shortage of childcare places in WA, which are now being exacerbated by government subsidies and competition for land suitable for new centres.
Long leases
Centres that have been recently developed are the most sought-after by investors. These are typically sold by a developer with an operator on a 15 to a 20-year lease.
Mr Wallman said developers usually prefer to sell a centre upon completion and commencement of a lease. Some, however, do retain ownership for the first year or two of operation.
Operators, which typically run the centres under a lease based on the number of child places accommodated, usually prefer a centre that can accommodate 75 to 95 places. This requires land of around 1,850 sqm to 2,750 sqm.
Despite planning regulations in WA typically being supportive of new childcare centres, many of WA’s growth locations remain largely undersupplied. New accommodation and infrastructure are not keeping pace with population growth.
Understandably, sites that are suitable for childcare centre development are located close to primary schools for convenience for couples with more than one child, as sites near shopping centres and areas with a high density of young families.
While available sites are rare, buyer interest in childcare centres has surged.
Typical yields on sales have tightened over 100 basis points in some cases since the pandemic began. And as yields have fallen, the asset class has attracted sophisticated buyers with a longer-term view.
“The buyer profile has varied a bit as the asset class has gathered support,” Mr Wallman said.
“We have seen many local and national syndicators entering the market in recent months and also institutional funds as they increase weightings to more defensive assets.
“There is a social value of childcare to the community so there is always going to be a demand. We see that demand growing due to confidence that the asset class will perform well through the cycle. The federal government has indicated it will continue to support the sector strongly through reforms and increasing subsidies.
Jake Wallman, LJ Hooker Commercial Perth
“We expect childcare to remain a popular asset class in WA, with our market offering a strong value proposition compared with other states due to the affordability of land.”
