Child care assets lucrative asset class amidst uncertainty

SYDNEY, 22 August 2023 – As global economic uncertainties continue to create waves in traditional investment markets, astute investors are turning their attention to alternative asset classes that offer stable returns and resilience.

Among these, child care centres continue to perform as a standout defensive asset class, providing investors with a unique opportunity to secure their portfolios while contributing to the critical early childhood education sector.

JLL’s Gordon McFadyen said, “Child care is a compelling and lucrative asset class, attracting investors with its unique blend of financial resilience and social impact. These centres offer stability and consistent returns due to non-cyclical demand, government support, long-term leases, population growth, and recession-resistant characteristics.

JLL Research indicates 14 transactions of NSW child care assets so far in 2023.

“Investor demand is strong as these investments offer secure stable cash flow, land tax exemption in NSW, annual rent increases and depreciation benefits,” said Mr McFadyen.

The Federal Government has committed to investing $4.7 billion over the next four years to make early childhood education and care more affordable. From July 2023, the Child Care Subsidy (CCS) rate will increase up to 90 per cent for eligible families earning up to $80,000 and a sliding scale for CCS will apply for families earning up to $530,000.

Mr McFadyen said, “The government's unwavering commitment to early childhood education supports the financial viability of child care centres through various funding initiatives and subsidies. This government backing adds an extra layer of financial security for investors, reducing the cashflow risk associated with this investment and making child care centres an attractive and defensive option.

Most recently, JLL has been appointed to sell a highly attractive child care investment on Sydney’s Northern Beaches. The modern purpose-built child care centre is 100% leased to Puddleducks Early Learning Centre until 2037 with options to 2057, fixed rental increases annually offering a net income of $316,146 per annum.

“The 68-place approved centre has a fantastic reputation within the local community for providing the highest quality of childcare and boasts 100% occupancy with future waiting list. The asset has a price guide of $5.5 million,” said Mr McFadyen.

Child care is an essential service for working parents, and historical data indicates that the demand for quality early childhood education remains constant regardless of economic conditions.

Mr McFadyen said, “Working parents rely on reliable child care services, creating a consistent and predictable revenue stream for child care centre operators. This stable demand ensures that investors can benefit from steady returns, even during economic downturns.”