Superior Lease Profiles Driving Childcare Market

A Sunshine West childcare centre in Victoria has been put on the market with expectations in the mid $3 million range as demand from investors for the secure lease profiles on offer in the sector has seen yields continue to tighten.

According to marketing agents, Savills Julian Heatherich and James Lockwood, the property, leased to national ASX listed operator G8 Education, will test the market in a very strong education precinct comprising eight primary schools and five secondary schools.

“It goes without saying that childcare centre investment has become a must consider commodity of the more astute investor in recent times.

“The rapid growth of this sector backed by strong government support, a lack of quality investment stock generally, and other factors such as record low interest rates and share market volatility, have worked to put the sector high on the list of investment considerations,” Mr Heatherich said.

Mr Lockwood said the sheer number of investors clamoring for a piece of the childcare centre action had seen yields fall continuously over the last 18 months, with yields in Melbourne now as low as 3.89 percent.

“What has worked so well for childcare centres, apart from the obvious growth industry aspect, are the secure lease profiles, usually to national operators, and the prime, main street, locations offering excellent underlying land value. There are few property investment options that offer such an attractive array of investment credentials,” Mr Lockwood said.

Located directly opposite Glen Gala Shopping Village on the prominent corner of Fitzgerald Road, the 2 David Drive property comprises a modern, purpose-built centre, with a high quality, 703 square metre building licensed for 93 places. The substantial 2,216 square metre site includes extensive outdoor playing areas and 18 on-site car spaces.

G8 Education Limited - a national operator with over 450 child care centres – has a 10 year lease expiring November 2018 with two further five year options at $198,061 per annum - an amount which the agents suggest offers significant rental upside.

The ownership of centres is dominated by institutional and not for profit organisations including Goodstart which has 641 centres and a circa 10 percent market share, Folkestone Education Trust (395 properties), G8 Education (more than 450 centres), Arena REIT (179 centres) and Affinity Education Group (more than 150 centres).

Mr Lockwood said operators were attracted to an industry forecast by the Productivity Commission to require more than 500 new centres at circa 100 places each over the next ten years, to cope with the suggested additional demand for 50,000 long day care places.

“This is the quintessential growth sector, a sector which is driven by strong population growth and unequivocal backing from all major political parties. It is little wonder demand from investors is so strong,” Mr Lockwood said.

The property will be auctioned on Wednesday June 8 at 2pm in Savills Boardroom, Level 25, 140 William Street, Melbourne.