Why Investment in Childcare Makes Sense

The childcare industry has enjoyed one of the fastest growths of all commercial real estate investment assets in recent years.

The central pillars contributing to its substantial growth include; high investor demand, growing demand for additional locations, and strong, continuing government subsidies.

A growing population, combined with an increased number of women entering or returning to the workforce, also fuel this burgeoning sector.

Parents are also increasingly seeking early formal education, knowing how beneficial an early education can be for children's future academic success. When combining all of these factors, the demand for childcare has reached levels never seen before in this country.

Furthermore, this trend is set to continue for many years to come. It appears to be a sector of commercial real estate that is immune to the hit that many other commercial real estate assets have taken in the wake of the COVID-19 global pandemic.

While many in the workforce have been forced into working from home, and the emergence of eCommerce crippling retail, the need for childcare remains high.

With excellent lease condition, high yields and low-interest rates available today, childcare centres in Australia provide a highly desirable real estate asset class. They will likely only become even more desirable in 2021 and beyond.

Here is a summary of the key factors that make childcare centres an astute investment.

Attractive leasing conditions often in favour of the landlord – which can sometimes include building maintenance. Tenants are typically high quality who are seeking extended and secure leasing agreements.

Strong government support means families can receive substantial subsidies, reducing their overall costs for childcare. The federal government understands the barrier that high childcare fees can create, particularly for low-income families. Government funding significantly increases the demand for childcare services and helps childcare operators and owners maximise profits.

A healthy return on investment compared to other investments. Childcare has enjoyed exponential rental returns in recent years and provides much better ROI over the long term than other real estate investments.

Childcare boasts a strong underlying business model. With the factors outlined above, the childcare industry has been able to increase fees over the past decade regularly. A trend that looks set to continue.

Tenants typically invest heavily into properties, resulting in lesser relocations and higher occupancy rates than other real estate assets. This provides a more secure and more stable income stream.

Childcare centres are often located within residential areas. Zoning typical permits conversion if required to residential use.

According to government data, 1,376,470 children and 986,000 families attended a childcare subsidy approved childcare centre in the first quarter of 2020.

Of those assessed for their childcare subsidy eligibility, 45.1% of children aged 0-5 years and 31.8% of children aged 0-12 used approved child care. The average hours per week for all service types was 25.2 hours. For centre-based day-care, the average was higher at 30 hours per week per child.

The total subsidy (Child Care Subsidy & Additional Child Care Subsidy) was over $1.9 billion for the March quarter of the same year.

The average rate across all service types (not including home care) was $10.00 per hour, which equates to an increase of 4.4% from the March quarter in the previous year - 2019.

The number of births in Australia is increasing. Due to population growth, Australia now sees over 300,000 new births per year according to the ABS (Australian Bureau of Statistics). This increase in registered births over the years will increase the demand for childcare services.

In these unprecedented times, it is reassuring to be invested in a sector unaffected by offshore economic factors. The childcare sector promises to remain strong despite recent continual upheaval due to the Coronavirus. Unlike other industries – particularly in the digital age, and at the dawning of mass 5G adoption, A.I (Artificial Intelligence) and IoT (Internet of Things) - childcare isn't subject to redundancy via technological advancements.

Childcare investment is suitable for a broad segment of investors, including self-managed super funds.

Growth upside remains strong. In conjunction with the urban sprawl, an increasing population, the need for parents to obtain quality early education and unyielding government support, the childcare will experience a constant demand for the foreseeable future.

Success in the industry is dependent on understanding the colossal shift in-service requirements, and the subsequent stanch competition between childcare operators in Australia.

The emphasis today and moving forward is maintaining the utmost quality in terms of cleanliness, building aesthetic, well-designed and compliant buildings and facilities. This heighten expectation has led to increased rental stability and the highest occupancy rates within the broader commercial real estate sector.

The industry has infinitely more professional and multifaceted. It is no longer viewed with a one-size-fits-all approach. Today, many options exist to cater to different styles of education, as well as different languages and cultural variances within Australia's multicultural society. These driving factors are integral in the decision-making process, and powerful persuaders for parents seeking the highest standards of early education for their children will ultimately impact operators' occupancy rates. ‍

Key Considerations‍

Sourcing, designing and constructing of childcare centres is a task requiring technical knowledge. A team of experts must oversee all facets of the tasks involved, including design & planning, impact on the local environment, traffic mitigation, time and cost estimation, and statutory compliance through each construction stage through to occupancy. Each client has unique design and functionality requirements that need to be managed and applied. ‍

Our Process‍

Sites that are sourced and offered by Queensland Investment Consulting Group are in locations in high-demand and based on operator requirements and instructions. Tenants are secured before property acquisition. QICG understands that childcare operators have different requirements. And as such, we work closely with childcare operators to recognise their unique needs and tailor leasing opportunities that are in alignment with the conditions. It's understood the calibre of the tenant is vital to the value of a childcare asset. All tenants vetted by QICQ are ensured to be financially experienced and can approve proposed leasing objectives. Our process avoids the pitfalls felt by many other developers who fail at childcare centre development. QICQ risk mitigation is critical in all of our projects. It provides the foundational framework for our entire process, and it is the primary reason we enjoy continued success for all of our clients. ‍

Buy on Completion‍

QICQ also offer clients the option of buying a property upon completion, eliminating the potential headache of development. Investors may enter an agreement with a developer to acquire the childcare centre upon completion off-market. This approach can benefit the developer and investor, as the investor can pass savings on to the investor from reduced marketing expenditure.

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For more information relating to an investment in the childcare sector, contact our friendly team today - info@qicg.com.au - 1300 002 880.