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The childcare sector is on track for a record year of investment, according to a new Colliers International report, which notes the emergence of the sector as a "true property investment class".
On the investor side, demand has been driven by A-REITS like the Folkestone Education Trust and Arena REIT along with private investors. On the operator side, there are now large players like the listed G8 Education Group and not-for-profit Goodstart Early Learning, which emerged following the collapse of ABC Learning in 2008.
According to the Colliers International white paper, Child Care: Australia's Burgeoning Real Estate Investment Class yields, which were as high as 14 per cent in 2010, have ranged between 3.9 per cent for a childcare centre in Chatswood to 7.3 per cent in the past six months as values have surged.
The report identified 18 childcare centre sales in the first six months of the year, compared with 33 childcare centres sold at auction in 2015 and just 2 in 2008.
Brian McInally, head of childcare transaction services at Colliers International, said sales volumes were stronger than last year with the majority occurring in NSW.
"Yields of 5.5 to 7 per cent have been achieved consistently over the past year or so," he said, adding that as part of the maturing of the sector and rising sales levels, lease terms of 15 to 20 years were emerging.
"Currently 52 per cent of the sector is on 10-year lease terms with 35 per cent on 15 years or above," he said.
New players add strength
The white paper forecast further consolidation of the sector driven by new institutional entrants and listed players, noting that Morgan Stanley's Real Estate Investment trust recently entered the childcare market purchasing developer and operator, Australian Childcare Projects.
The country's two biggest listed owners and developers of childcare centres, the $635 million capitalised Folkestone Education Trust and $460 million Arena REIT have 33 childcare centres under development combined. Both have also explored merging in recent years.
"Over the next few years, as operators consolidate and institutions look for scale in the industry, the market will see more transactions occur resulting in yields remaining sharp in the short to medium term," Mr McInally said.
Private operators and owners could be pushed out of the market, he said, snapped up by institutional investors looking to quickly gain market share.
The report notes that while the national occupancy rate sits at about 70 per cent, the rate needed for individual centres to be profitable, this is heavily skewed in favour of inner city and metropolitan areas. Occupancy rates are as low as 50 per cent in some regional markets.
It also notes that a lack of development sites in inner city and metro markets was driving two thirds of new childcare centres in those areas into mixed-use developments.
"Due to lack of land availability in the inner city regions the growth of new centres is likely to be restrained, forcing inner city mixed use developments to incorporate childcare centres in order to keep up with the growing demand," Mr McInally said.
Read more: http://www.copyright link/real-estate/commercial/investment/childcare-sector-on-track-for-record-year-of-investment-20160620-gpn8oc#ixzz4CGdcmGA1
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