Deals struck for childcare centres and sites as lift in subsidy nears

Childcare centres and new development sites with approvals are continuing to sell despite challenging economic conditions, as essential services prove popular.

Childcare operators are expanding their portfolios while investors are backing the essential asset type, as the federal government has committed to injecting funding into the sector mid-year.

New development sites with approvals and established centres are continuing to sell despite challenging economic conditions ahead of the July lift to the childcare subsidy, which will take rates up to 90 per cent for eligible families.

Five childcare development sites have sold in just 30 days in Sydney’s western suburbs, for a total of $14.265m. All the sites were acquired by various childcare owner-operators with a combined total number of approved 421 places and each site offering a range of 58 to 120 places.

The deals – on sites at Rooty Hill, Bankstown, Guildford, Auburn and Toongabbie – were negotiated by Ray White Commercial Western Sydney director Joseph Assaf, senior sales executive Jai Sethi and sales associate Andrew Sacco.

“Childcare operators are aggressively expanding their businesses to capitalise on the sustained demand,” Mr Assaf said. “Owner-operators are keen to cut out the development approval and pay a premium for already approved sites that can start straight away.

“Demand has been very strong, and that led to competitive bidding in the case of the Auburn and Toongabbie sites which were sold at auction, with multiple offers received for Rooty Hill, Guildford, and Bankstown including short settlement terms to secure the sites.”

Burgess Rawson Queensland managing director Adam Thomas said the sector was proving resilient.

The agency has 11 centres coming to auction next month, including the Goodstart Early Learning Centre in Sydney’s prestigious suburb of Mosman, currently leased at a net annual rental of $121,434, and the Avenues Early Learning Centre in the southwest Brisbane suburb of Jindalee, which returns $227,288 a year.

“They are future-proofed to a certain extent,” Mr Thomas said. “Early education is unaffected by any disruption, if you like. It is a face-to-face interaction, so it can’t be replaced by online learning or any type of new technology. Also, the additional and ongoing incentives and funding that the federal government provides.”

Ray White head of research Vanessa Rader said the subsidies on offer would ensure occupancy levels remained elevated and rental growth built into most lease structures was attractive. “With changing expectations surrounding yields, volumes are expected to remain low in 2023 as owners hold onto assets,” she said.

“While transaction volumes for established assets are down, there has been an uptick in development assets coming to market this year,” Ms Rader said. “A combination of higher financing costs together with elevated building rates has put pressure on some developers/vendors, causing them to reconsider their future development plans.”

The economist expects strong population growth has supported strong precommitment tenants for the developers and leasing activity has seen improvement.