• Supply has not kept pace with demand for child care due to a rapid increase in working parents.
  • The result is long waitlists, high costs, and limited availability of quality child care for families.
  • Govt support includes the $2Bn Federal Preschool Agreement and the Vic Govt's $9Bn pledge.

Investors are expected to re-engage in the early childhood education and care sector, after an interest rate induced slowdown in 2023, to capitalise on residential growth and favourable government conditions.

While the increased cost of capital and related borrowing risks slowed private and institutional investment last year, a range of underlying growth drivers are expected to propel the market, according to a new CBRE review.

These include the return of international migration and more favourable government subsidies, which will help bolster operator growth in 2023.

CBRE Australian Healthcare & Social Infrastructure Director Jimmy Tat said staffing shortages had been one of the key issues for the sector, with many businesses having to operate at a much lower occupancy, despite the demand from families.

However, with the return of international migration, these issues were expected to ease, allowing for growth in the industry.

Subsidies changes to strengthen the market

Recent changes to the Federal Government’s Child Care Package subsidies, as well as the government’s support of childcare as an essential service, will be another growth driver, strengthening the resilience of the investment market.

“We’ve already seen the positive effects of these government changes and while there will be some ongoing challenges, most childcare operators are positive about the future and the industry’s overall and consistent growth,” Mr Tat said.

“In tandem, we expect to see increased investment from both private and institutional investors, underpinned by the childcare sector’s long leases, single tenant structure, and the stability of operating with significant government support,”

While investment slowed in 2022, CBRE’s review notes that several larger transactions did occur as operators sought to achieve greater economies of scale and counter ongoing increases in operation and labour costs. These included:

• Busy Bees ELC purchased ASX-listed Think Childcare Busy Bees has over 850 childcare centres around the world.
• Quadrant Private Equity purchased Affinity Education for $650 million from private equity firm Anchorage Capital.

New properties on the market

Three high exposure development sites in Ashwood, Chelsea and Mitcham are up for sale, each with permit approval for a premium child care facility.

Despite the sites also suiting townhouse development, child care prevailed as the preferred planning outcome on the back of the growing concern of undersupplied child care services in Victoria.

Savills Director, Julian Heatherich said, “The demand for child care has risen due to a rapid increase in working parents, yet the supply has not kept pace. This has resulted in long waitlists, high costs, and limited availability of quality child care options for families.”

At the 2021 Census there were over 375,000 children aged 0-4 years in Victoria, although Licensed Daily Childcare Places can cater for less than 40 per cent of this number.

This lack of supply is troubling given the fact that between the 2016 and 2021 Censuses, the number of families in Victoria with two parents working full time increased by 22% from 265,111 to 323,693.

The properties:

Two of the three sites have lease agreements in place to a national Montessori Education provider. This distinct approach to education is based upon independent and self-directed activity where educators act more as a facilitator than an instructor.

Mr. Heatherich said, “Montessori Centers have become commonplace in the child care industry, providing competition to traditional facilities while unlocking a divergent target market.”

Each of the centers will feature spacious children’s rooms, outdoor play areas, and modern staff amenities to provide a safe and engaging environment for children.

Oreana’s nationwide childcare development plan

Melbourne-based Oreana has plans to deliver 30 new childcare centres over the next three to four years with expansion into the Perth, Brisbane and Sydney markets.

Oreana said its upcoming new centres would be delivered mostly in Melbourne and across regional Victoria as well as the two sites it has secured in Perth. Within Melbourne, these projects include a 134-place childcare centre on a 2,539 square metre site in Clyde due for completion in April 2023 and a 148-place centre that is part of the Kalkallo Town Centre under construction in Melbourne’s northern corridor.

This adds to the 17 early education centres it has delivered in recent years in Melbourne, making it one of the largest suppliers of new-build centres in Victoria.

The Group established a separate early education division business to capitalise on the significant opportunities in the early education in the coming years.

That growth has been underpinned by Federal and State Government support, which has included the $2 billion Preschool Reform Funding Agreement and the Victorian Government’s announcement of $9 billion over a 10-year period to provide universal pre-prep for four-year-olds and establish 50 government operated childcare centres.

A sought-after investment class

Oreana Property’s Director of Property Chris Raywood said, early education centres continued to be one of the most sought-after asset classes among investors: “Early education centres continue to sell for tight yields which shows the strong demand from investors.

“We anticipate this demand to only grow stronger as investors focus on ‘safe’ asset classes amid stock market upheaval and headwinds being experienced in other property asset classes,” Mr Raywood said.

Oreana’s divestments of centres include Bella Estate Childcare in Clyde and 19 Keighery Drive, Clyde North, which both resulted in effective yields of five per cent.

Oreana has now secured two sites in Perth and is now actively sourcing opportunities to expand into the Sydney and Brisbane markets.

A specialty development sector

Mr Raywood said Oreana had built a specialisation in early education by working closely with early education providers to understand their requirements and provide tailored building designs to meet their specific needs.

He said, “Our newest centres incorporate the latest innovations in childcare design including stimulating play spaces, various sustainability initiatives and all-weather piazzas where a range of activities can take place such as chef demonstrations, communal gatherings and parent events.

“This ensures that children are exposed to the most industry-leading learning opportunities and experiences, which in turn maximises occupancy for childcare operators.”

“We fully support the additional childcare places being funded by federal and state governments because this is enabling more women to join the workforce, which is positive, especially amid the rising cost of living” he said.

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