Childcare centre yields close in on residential in Sydney

Childcare centres remain a popular draw for private investors, with a 36-place G8 Childcare centre property in Sydney’s eastern suburb of Vaucluse selling for a record low yield of 3.6 percent at a Burgess Rawson portfolio auction.

The 5 Billong Avenue property sold for $4.425 million at the auction on May 16 in Sydney.

The lowest known net yield for a childcare centre before this was held by another Burgess Rawson auction, the 3.9 percent Hubba Bubba Childcare centre at 204 Mowbray Road in Chatswood sold last year, reported the Australian Financial Review.

Dean Venturato, Burgess Rawson director said yields for childcare centres are now edging closer to residential yields – usually a gross yield of about 3 to 3.5 percent in Sydney.

The yields in Melbourne for childcare centres are higher, as recent sales show. Five fully leased Victorian childcare centres sold for more than $44 million – an average of $8.8 million each, earlier this month. The five childcare centres generated an average 5.3 per cent yield, according to selling agency Savills.

The 708 sqm corner property has a 10-year lease to ASX-listed G8 with three further 10-year options to 2054. 

Net income from the property is $158,096 pa, with the tenant paying for all the usual outgoings including management fees.

The property was offered as part of a portfolio of five childcare investments at the auction.

Even though the yields were low, Venturato said the value of the land accommodating these centres as well as secure cash flows were still more appealing than housing investment returns.

"Childcare centres consistently rate as our number one most sought-after asset class," Burgess Rawson director Dean Venturato was quoted as saying by the AFR.

"We have an over 95 percent clearance rate for these properties, proof of their immense popularity among private investors."

Another G8 centre in Maroubra, also in Sydney's eastern suburbs, sold for a net yield of 3.7 percent, at $3.53 million.

One private investor said she wasn't surprised at the low yields. "Even Matraville property prices [further south to Maroubra] are going up," she said.

All five Sydney metro childcare properties leased to G8 offered at Burgess Rawson's auctions sold for net yields between 3.6 percent and 4.1 percent, the lowest of the auctions.