Childcare centres one of the few remaining 'set and forget' investments: Burgess Rawson

Interest for childcare centres continues unabated, with more properties under the asset class sold so far in 2017 than previously.

A recent analysis by commercial real estate agency Burgess Rawson of its sales over the past seven years shows 65 properties have been sold in 2017 so far, higher than previously. 

The average yield has risen to more than 5.5%, their report says.

Burgess Rawson, which has nearly three-quarters of the market share for childcare centre sales in Australia, says in a new report that average yields have fallen to 5.84% in the year to date from 7.58% since 2013. 

Burgess Rawson’s director Billy Holderhead was quoted by the Australian Property Journal as saying that unlike other property sectors where a surge in supply would normally result in an oversupply and push yields higher, childcare investment yields have declined further.

Supply increased a massive 550% between 2013 and 2014, yet yields compressed further by 10% from 7.58% to 6.89%.

“The sales history shows that despite increased supply, compression yields and greater price volumes continued. Therefore equilibrium, where demand is met, in our opinion has not been reached,” he said in the article carried on Burgess Rawson’s website.

“We see this trajectory continuing into the foreseeable future.”

Even the collapse of ABC Learning Centres has not dented the popularity of childcare centres, with 96% of all ABC centres now assigned to Goodstart, a consortium of The Benevolent Society, Mission Australia, the Brotherhood of St Laurence and Social Ventures Australia.

Burgess Rawson’s associate director Adam Thomas said childcare centres truly are one of the few remaining “set and forget’’ property investments, with strong similarities to supermarkets in a previous era when leases were more favourable to landlords.

“This shows the core fundamentals are there,” he added.

In the last five years, rents have surged too. Rents range from $1,500 and $6,000 per childcare place, per year, with metropolitan centres sold this year averaging $3,000 per place, according to Burgess Rawson.

Five years back, the metro range was nearly $2,000 and has now climbed to the high $3,000’s.

Earlier this year, a record low yield was set at an auction in Sydney when a 36-place G8 Childcare centre property (picture above) in Vaucluse sold for $4.425 million on a yield of 3.57%.

Another research by Ray White, Between The Lines: WA Child Care, says the child care market as an income producing asset class has grown in appeal across the East Coast for the two years with a push into the Western Australian market has heated up during the second half of 2017.

“It says high supply over the last five years in the East Coast was realised due to the large increases in population and the undersupply of facilities, in more recent times its heavily subsidised income stream has not gone unnoticed by savvy investors,” it says.

The prospects for childcare centres looks secure with the federal government projected to spend $8.8 billion in 2018/19 and as much as $10 billion by 2020, according to Burgess Rawson childcare specialist Michael Vanstone.

The government predicts this investment will return 90,000 parents back to the workforce, which will add $3.1 billion to the economy, adds the Burgess Rawson report.

The Ray White report, which focuses on WA, says the market there is still in its supply phase with a high volume of stock recently entering the market and a pipeline in the works.

Researchers Vanessa Vader and Stephen Harrison say the demand for childcare centres is high as investors can see the value and attractive yields still on offer. Added to that is the ease of funding for child care assets.