Childcare centre in Melbourne sells for $6.82 million

Childcare centres are firmly on the radar of off-shore investors, as evident from the sale of a childcare centre in Melbourne's Camberwell to a China-based investor for $6.82 million after more than 70 percent expressions of interest coming from foreign buyers.

The purchaser paid more than $400,000 over the reserve - on a 5.05 per cent yield, the firmest yield yet recorded in the price range. The sale follows a similar result late last year when a China-based investor paid $2.3 million on a 5.1 per cent yield for a childcare centre at Rowville.

Head of Savill’s Childcare Investments team, Julian Heatherich, who brokered the 164-168 Warrigal Road deal with James Lockwood, said childcare centres were now flavour of the month.

"Childcare has really come of age as an asset class in its own right and this sale presents unequivocal evidence. We currently have more interest for child care investment than any other asset class. The property drew well over 100 enquiries with seven out of ten formal offers coming from off-shore,’’ Heatherich said.

Located directly opposite Wattle Park Primary School, the modern, purpose-built centre comprises a 547 square metre floor area and 24 car spaces on a 2,065 square metre site with three street frontages. It was sold subject to a 10 year lease with option for a further 10 years to national operator, Affinity Educational Group, at an annual net rental of $344,986.

Heatherich said strong government support for one of the nation’s most rapidly growing industries was a key driver of the growing demand for chlldcare centre investments with centres selling off-market, off-the-plan, prior to auction and at hotly contested auctions.

He said the Rowville property had also attracted more than 100 enquires.

Heatherich said yields for childcare centres had, until recently been in the 6 to 7 per cent range but were now below 6 per cent.

"This is another example of buyers being prepared to buy on yields under six per cent and with such a strong foreign contingent vying for these centres it’s likely that we will see yields tighten even further over the course of this year.’’

Long term leases and strong government support for one of the nation’s most rapidly growing industries along with a statutory obligation for lessees to fastidiously maintain in the best possible order a facility which houses young children, had been key drivers of the increase in demand in the sector.

The Productivity Commission report into the childcare sector suggested an additional 50,000 long day care places will be needed to accommodate the population growth in children and the subsequent demand for childcare over the next ten years, while an increase in the maximum daily subsidy for childcare, proposed by the Federal Government, has provided further confidence for a market which is already one of the nations’ strongest employment growth sectors,’’ Lockwood said.

The federal government, in the 2015 Budget, announced $3.2 billion of new spending over four years to improve the affordability of childcare for low and middle income earners.

According to the Department of Social Services data, 1.2 million children attended approved child care in the year to September 2014, up 8.1 per cent on the previous year while the number of long day care centres grew to 6601.

"Childcare centres are going to figure prominently in investor portfolio considerations for years to come. We are only seeing the start of that trend now,’’ Lockwood said.