Demand surge drives Child Care sector

Australian Child Care centres have recently transformed into an attractive investment grade asset class. This is driven by the increased cost and demand for child care services spurred on by government funding and increased female work participation rates.

According to Colliers International’s first child care industry white paper ‘Child Care in Australia – An Industry Review’, the Federal Government’s financial support of the sector, together with a continued effort in boosting national productivity have been the key catalysts for the recent transformation of the industry.

Brian McInally, Associate Director of Child Care Transactions Services at Colliers International said in addition to government investment, regulatory changes, changing demographics, population projections and workplace trends have also led to the development of new child care centres, especially in inner city and metropolitan areas.   

“Over 1.2 million children attend approximately 17,000 government approved child care services nationwide, and those numbers have grown substantially over the last 5 years, recording a 4.6% annual growth rate.

“The number of children using formal day care continues to increase, along with waitlists at many centres, particularly those located in inner urban areas. Another approximately 500,000 children between 0-5 years are estimated to be added to the population over the next 15 years. 

“Female work participation rates have risen from 44% to 59% over the last few decades presenting a long term opportunity as a growing number of families use formal child care services. 

“Even the demise of ABC Development Learning Centres in 2008 has contributed to the current state of play within the industry, bringing with it a completely new set of market participants. 

“What was a highly fragmented sector, has gradually seen consolidation and become an appealing investment class for institutions.

“Child care is currently in its growth phase, with institutions becoming aggressive in their pursuit for market share, however, regardless of these drivers, there are some limitations.  

“As institutional investors such as G8 Education Limited, Arena REIT, Folkestone Education Trust and Affinity Education Group enter their development cycle, we’ll see the availability of suitable sites diminish, intensifying competition while simultaneously having the ability to stall growth.  

Child care white paper

“Moreover, an upskilling in staff, increased educator-to-child ratios and the implementation of educational programs will see an uplift in operational costs, adding to slowed growth in the short-term as centres take time to adjust to recently imposed government regulations.

“In terms of ownership the biggest player in the market is Goodstart, a not-for-profit organisation with 644 child care centres nationwide, followed by the listed company G8 Education Limited with 400 child care centres and Folkestone Education Trust who are an AREIT and own 396 child care centres.”

A childcare and retail portfolio fully leased to G8 Education Limited has just come to market. It comprises three early education centres and a fully leased multi tenanted retail shopping centre in Queensland, and an early education centre in South Australia. 

Brian McInally and Steve Clark of Colliers International are marketing the portfolio via an expressions of interest campaign. Mr McInally said the long term leases to corporate businesses range from 10 years plus options with a combined net rental of $1,686,241per annum providing the new owner a secure and safe income investment.

According to Mr McInally, over the next five years the population forecasts and maternal participation rates will continue to drive demand in the child care sector with further growth a near certainty. This is despite the delay in the implementation of the $3 billion child care package until mid-2018, as reported in the recently released Federal Budget 2016-17.

“Recent history and forward projections indicate child care will continue as a sector of sustained growth, largely supported by social trends.  

“It’s unlikely it will retreat to its previously highly fragmented nature as institutions have aggressively taken opportunities to enter a performing market, growing market share and gaining economies of scale.  

“Consequently, industry consolidation will continue as acquisition and merger activity is expected to increase.” 

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