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Childcare centres should remain an attractive investment vehicle for years to come thanks to budget commitments at a federal level, according to a local commercial agent.
Jake Wallman, LJ Hooker Commercial Perth executive, believes investors are poised to bounce on childcare centres throughout the West Australian capital off the back of government support to heighten interest in defensive assets with strong and stable incomes.
The Albanese government announced increased childcare subsidies for families earning less than $530,000, which Mr Wallman believes will ensure the asset class remains favourable among investors seeking long-term leases and attractive yields.
Over the past 20 months, when his agency has managed approximately $60 million in childcare centre sales, Mr Wallman explained the buyer profile “has varied a bit as the asset class has gathered support”.
“We have seen many local and national syndicators entering the market in recent months and also institutional funds as they increase weightings to more defensive assets,” he said.
Even with yields on sales tightening over 100 basis points since the onset of the pandemic, he said the asset class has pivoted to attract more sophisticated buyers with visions for the long term.
Mr Wallman added childcare centres’ stance as a necessity within communities often results in their stronger performance.
“There is a social value of childcare to the community, so there is always going to be a demand,” he said. “We see that demand growing due to confidence that the asset class will perform well through the cycle.
“The federal government has indicated it will continue to support the sector strongly through reforms and increasing subsidies.”
Newly developed centres have been the most highly sought-after by investors, typically sold by developers with an operator already installed on a 15-to-20-year lease. Although most developers preferred to sell upon completion and commencement of a lease, some opted to retain ownership for the initial few years of operation.
Planning regulations, which are generally supportive of new childcare centres, cannot combat the reality that many of Western Australia’s growth locations remain largely undersupplied, with the construction of new infrastructure unable to match the pace of population growth.
Operators commonly prefer a centre capable of catering to between 75 and 95 places due to leases being run based on the number of child places accommodated, meaning around 1,850 square metres to 2,750 square metres is necessary for places.
Mr Wallman concluded: “We expect childcare to remain a popular asset class in Western Australia, with our market offering a strong value proposition compared with other states due to the affordability of land.”
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