Childcare centre market poised for growth in 2023

Australia’s childcare centre market is expected to grow in 2023 with high levels
of Federal Government support and increasing attendance hours creating a positive outlook for the asset class, newly released research shows.

Cushman & Wakefield‘s report, Child’s Play: An Overview of the Australian Childcare Real Estate Investment Market, reveals investment into childcare centres is anticipated to persist throughout the year. Several centres are expected to hit the market in the coming months following the $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 he is seeing strong tailwinds for childcare centre investment across the Australian Market.

“Investors see favourable fundamentals and can benefit from new subsidies and $4.7 billion in government funding to boost access as demand rises.”

Jake McKinnon, Cushman & Wakefield Research Manager

Cushman & Wakefield Head of National Investment Sales, Daniel Cullinane, said investment has been seen to settle well above long-term averages after a bumper year in 2021.

“However, the drivers are shifting with investors targeting these asset’s recession-proof qualities like stable long-term leases, rather than the hunt for yield that dominated the past few years,” Mr Cullinane said.

The research reveals that strong demand for childcare services amid sustained increases in children’s weekly attendance hours.

Average hours of attendance per week of children aged 0–12 years at Australian Government approved centre based care

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Source: Productivity Commission; Cushman & Wakefield Research

Higher demand for childcare services along with competition for quality locations has led to rents rising 47% on average nationally over the last decade. The report’s analysis of recent child care sales indicates that rents per place ranged from $1,550 to $6,950.

Ongoing yield compression has been bolstered by demand from institutional, and foreign investors. Yields for city-based centres maintained a long-term decline, decreasing from 6.8% in 2014 to 4.9% in 2022. For centres located outside of cities, average yields lowered from 7.2% in 2014 to 5.3% in 2022.

“In 2022, the majority of assets nationally traded on sub-5% yields, and we’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,” McKinnon said.

Market Share

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Source: Dept. Ed.; Ibis World; Cushman & Wakefield Research

Minor or independent operators hold 72% of the market share creating favourable conditions for mergers and acquisitions activity. Among major operators, Goodstart Early Learning has the largest share with 10.3% of the market. G8 Education has grown rapidly, expanding from 17 to 448 centres since 2007. They now represent 6.4% of the market.

IBIS World forecasts revenue in childcare to reach $17.2 billion by the 2028-29 financial year, up from $14.0 billion in the 2020-21 financial year.

Article source: Queensland Property Investor