Childcare centres have become a market of their own and are increasingly sought after in the commercial property market as investors look to capitalise on the surge in demand for places at childcare centres. Investors who have experienced their benefits tend to hold onto them, and acquire further centres, meaning that the number of centres that come onto the open market is small.
However, it is not only the major players who are reaping the rewards, with 85% of ECE centres in New Zealand being run by small independent operators, who typically own one or two centres, usually licensed for less than 50 placements.
The value of a childcare business is closely tied to the physical property it occupies and the resource consent for the number of licensed placements. Most ECE centres are single-tenant, hands-free investments, with the tenant managing all internal and external property-related issues. Once a centre is developed and sold, it tends to operate under the same owners for lengthy periods.
The Childcare sector is viewed as more secure than other asset classes, not only because of the strength of the leases involved but also due to New Zealand’s high childcare participation rate, which continues to increase. Since 2008, the participation rate has risen from 93.6 percent to 96.6 percent 2015, while participation hours have reached an average of 21.7 hours a week, up from 13.5 hours in 2000. Charges vary but the average hourly rate is $5-$6, with parents paying between $150 and $350 per week. Public funding for the ECE sector is reliable and secure, rising from $860 million in 2008 to almost $1.63 billion currently. The Government, which fully funds 20 hours of care per week for all children aged three and four, committed an extra $396.9 million in last year’s budget to fund care for an extra 14,000 children by 2019/20. Its stated goal is 98% of children attending an early childhood service before starting school. Source: Ministry of Education
Auckland’s population growth is a key factor in the ECE sector’s growth, with projections of the population increasing by half a million within the next 10 years. While this will undoubtedly put pressure on existing childcare providers, the boom presents an opportunity for smart property investors and owner operators.
With the increasing population we believe the demand will continue to rise. In 2017 we are projecting 100 new centres across the country which will be consented by Establish, says Paul Rodgers, Establish Director. For those wanting to build from scratch, the rewards can be greater than buying an existing going-concern but the challenges are more substantial.
Every new childcare centre requires a resource consent and building consent from the Council. Prior to Establish, as a prospective childcare centre owner or developer, you had to engage a number of separate consultancies to prepare resource and building consent applications on your behalf. With Establish, we run your childcare development process for you – selecting the right project team members and presenting all of this to you as one complete package. Our dedicated Project Managers coordinate the whole process so we take care of all of the consenting complexities while you focus of designing a high quality education service to serve your community. This allows our Clients to deliver superior quality learning environments for their students which, in-turn, ensures that the centres reach capacity quicker and generate optimised income very soon after opening says Logan Whitelaw - Establish Director.