Demand for early education centres has jumped 40-fold in the last decade as new research shows the asset class continuing to soar in popularity. Underpinned by an enviable combination of fundamentals, the sector has become a firm favourite with landlords and operators alike, delivering such desirable benefits as long-term security and optimal prices at levels that have largely overridden drawbacks such as rising building costs and rents. Stakeholders have also remained undeterred by an exponential rise in purchase prices over the decade, with latest industry data released yesterday by commercial auction house and sector sales leader Burgess Rawson, revealing that the value of an average early education facility has leapt from about $1 million since 2012 to around $6 million.

Peak performance

Early education is now not only one of Australia’s fastest growing sectors but also among the most resilient. Asset capitalisation rates rose only marginally during the past year despite the 12 cash rate hikes rocking many other parts of the economy according to Burgess Rawson’s July 2023 Early Education Industry Insights Report. , while early education centres averaged yields of 5.14% over the past year

Other agencies are also witnessing intense focus on both early learning and childcare assets. (Early learning centres offer the same long hours of childcare for children through to five years’ old but with the added benefit of cutting-edge learning environments and qualified early childhood specialists.) Ray White Commercial Western sold five western Sydney childcare sites within a 30-day period earlier this year, the sales totalling $14.265 million. The sites located at Rooty Hill, Bankstown, Guildford, Auburn and Toongabbie, were snapped up by different childcare owner operators keen to “cut out the development approval and pay a premium for already approved sites that can start straight away,” said Ray White Commercial Western Sydney director Joseph Assaf. In January, CBRE transacted seven leasing deals in January alone, one of which involved childcare operator King Kids signing a 15-year lease for a brand-new facility in Melbourne’s Bentleigh on a net annual rent of $539,400.

Simply irresistable

The asset class’s desirability is largely buoyed by significant increases in government funding, solid reforms aimed at enticing more working parents - especially women - back into the workforce as well as Australia’s growing population. The Australian Government has pledged a further $4.7 billion in support for the sector over the next four years in addition to the $13 billion already budgeted. Additionally, NSW is committing $5 billion and the Victorian government $9 billion over the coming decade. One of the biggest reforms came into play at the start of July, the changes to allow eligible families earning less than $530,000 to benefit from increased childcare subsidy rates of up to 90%.

But while these factors have ignited enormous growth in the industry, the Burgess Rawson study revealed that the sector’s long lease terms were far and away the greatest attraction for investors. New leases now averaged between 12 to 15 years, the report noting that early education operators were strengthening their commitment to long term tenancies at the same time as other sectors grappled with occupiers requesting shorter rental periods. While lengthy leases offered great security often at a premium price, the report stated that shorter leases could potentially lead to landlords raising rents come review time as “many leases struck in the last decade were done so with rents that now sit well below market level”. Early education centres also carried the appeal of strong land values and high-profile sites often located in prized locations near an array of amenities and complementary outlets.

Niche markets

The sector’s growth has led to major operators increasing market share and leading financial institutions adding top assets to investment portfolios. The largest major operator is Goodstart, a provider that has grown since 20110 to fill 7% of the market with more than 650 centres, followed by G8 with 430 centres. Institutions focussing on the sector include Charter Hall, Australian Unity and HomeCo, lured by secure assets in strategic locations with high land values and offering capital growth.

A product of the sector’s rapid evolution has been the emergence of specialised premium centres offering unique services aimed at capturing niche markets. The shift started when centres began partnering with swimming schools and has led to some centres expanding offerings to include extra-curricular activities such as horse riding, language lessons, music tuition and more. Burgess Rawson researchers anticipate a key shift in the future to be “the adoption of a more holistic learning approach, where complementary services will be introduced, enhancing the curriculum, and adding significant value. This innovative approach will transform early education centres into convenient one-stop shops, catering to the needs of busy parents who are increasingly time-constrained. The integration of additional services, such as tutoring and potentially even health facilities, will revolutionise the early education landscape.”

Burgess Rawson’s industry report cites Brisbane’s Berrinba Central Early Education & Swim School as an example of this new style of centre: along with swimming lessons, the early education programme comprise tuition in language, creative movement, yoga and horticulture. Demand for co-located services is spiralling dramatically said the centre’s managing director Nic DeLuca. “Offering swimming lessons to children while they’re at daycare is such an obvious complementary service,” he said. “But it also gives precious time back to busy parents.”