Published on 04/03/2022 by Any Business.Com.Au

Is now the right time to buy a childcare centre?

We often think of the best-performing assets as property and shares. But what if there was an investment that combined both, buoyed by a robust industry, growing long-term demand, and powerful government backing?

Well here's your answer. With leasing rates at an all-time high and yield compression increasing, childcare assets have become hot property.

The need for childcare is growing in line with current family trends and population growth.

The Australian Bureau of Statistics estimates a 9.9% increase in the number of children aged under 3 by 2024, making it the fastest-growing proportion of the population.

Additionally, a cultural shift in Australia has seen more women returning the workforce than ever. The growing trend of double-income families has driven demand for early childcare and outside school hours care, with over 1.3million children accessing government assistance to attend daycare services in 2021.

Australian Childcare Brokers Queensland Sales Executive, Mark Nugent, said childcare businesses were generally selling at 4 to 6 times their net profit.

"Depending on their location, metropolitan centres are consistently obtaining the higher multiplier," he explained.

Mr Nugent said accessible childcare was a priority for the federal government, as a means to boosting the national economy by allowing more people into the workforce. They offer a range of grants and incentives to help more families use childcare services.

Childcare centres occupy sizeable plots, which in itself is a growing asset. As a centre owner, you have the choice of buying the land and property (a freehold investment) or the child care business itself, or both (called "freehold going concern").

Owning the land gives greater power to your asset and allows for profitable rezoning from commercial to residential down the track, as most centres are situated in neighbourhood areas.

As urban sprawl increases, more childcare centres will be needed to service the families seeking affordable properties in planned communities.

As a freehold owner, you can rent out the childcare property as a landlord. The lease terms are typically 10 years plus options, since frequent relocations are expensive and can wreak havoc on enrolment numbers.

Long, stable lease terms are a win-win for both tenant and landlord. Tenants can confidently set up a long-term, durable business, and landlords experience fewer changes of hands, which means maximum rental income with no vacancy time.

"Buyers are looking for consistent high occupancy centres of 70% plus occupancy with long term leases being a requirement for lending purposes," Mr Nugent said.

Childcare centres are notoriously immaculately maintained, too. The tenants in a childcare property must uphold high standards of cleanliness and upkeep to meet stringent industry regulations on quality of care.

"Buyers are required to be an approved provider which can take some months to obtain. The centre must be well presented and meet a socially acceptable standard," Mr Nugent added.

In terms of assets, child care centres are historically one of the most profitable, with many benefits that other investment opportunities lack.

Child care is a hands-on need for families that can't be replaced by technology, and can't be outsourced to off-shore companies. It's a brick-and-mortar business with high standards, in an industry that has to grow to meet the needs of a changing population.

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AnyBusiness.com.au

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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