We 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?
Here’s 7 reasons daycare centres are showing up as a top profitable performer, and why you should consider it, too – especially in today’s changing culture.
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#1: More double-income families than ever before
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.
#2: Massive government subsidies
Accessible childcare is 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.
The Child Care Subsidy (CCS) is a fee assistance incentive offered to eligible families sending their children to daycare and outside school hours care. It covers up to 85% of the fees, assessed by income.
Recently, the federal government announced a new CCS reform for 2022 that increases the subsidy for siblings in care, with no income cap. These subsidies allow more low and middle income families to access childcare.
#3: Clear growth in the amount of children in daycare
With more families seeking two incomes and the affordability of childcare with government subsidies, the numbers of enrolments continue to increase.
Although the Covid-19 lockdowns impacted enrolment numbers during 2020, the figures are well and truly bouncing back, with 44% of Australian children aged between 0 – 5 enrolled in child care services. According to the ABS, 81% of children aged 4 attend pre-school, even with skewed numbers because of the pandemic.
In response to the growing demand for quality childcare, Early Childhood educator jobs are expected to “experience the largest relative growth in the sector, growing by 22% or reaching 9,000 jobs by 2023”, according to the Australian Industry and Skills Committee Report,.
Management roles are projected to increase by 20%, and childcare industry positions as a whole will increase by 27,000 jobs to accommodate the new centres needed to meet demand.
#4: Large land sites in prime locations
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.
#5: Long-term, stable leases from invested tenants
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.
Properties are immaculately maintained, too. The tenants in your property must uphold high standards of cleanliness and upkeep, to meet stringent industry regulations on quality of care.
Not to mention that the main client – the parents – are placing greater value on excellence, cleanliness and education, which drives competition and can be a deciding factor on a parent’s choice of centre. As a result, the property itself stays well preserved and maintained.
#6: More profitable – faster – than many other forms of investment
In terms of assets, child care centres are historically one of the most profitable, with many benefits that other investment opportunities lack. For example:
- As a freehold property owner, you’ll own a substantial block in a premier location, which is a lucrative land investment
- Due to childcare standards, your buildings and land are kept well maintained by the business operator, which means more profit down the track at sale time – which can’t always be said of tenants in a rental property or other commercial property
- The sustainable nature of the childcare industry along with long lease terms allows for steady annual rental increases, without the fluctuations you might otherwise experience with a commercial property to cater for vacancies, different tenants, and changes in the market
- Rental income is stable, since leases are typically more than a decade, with tenants who invest heavily into their premises
- The attractiveness of childcare property investments is that a sustainable secure childcare tenant provides compounding annual rental increases for the owner over the length of the lease.
- Childcare property returns tend to be stronger and properties rarely vacant compared to other classes of commercial property assets, which over the same tenancy period may include long vacancies and fluctuations in rent?
- Rental yields are impressive compared to an investment property, with the average national yield sitting consistently between 5-6% in metro areas
- Market volatility is far less than other assets such as shares or cryptocurrency
- Massive depreciation benefits across the life of the property, including blanket recovery of landlord expenses, which can extend into the millions for larger centres
#7: Unaffected by technology or off-shore economies
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.
Childcare is an essential service with strength and stability.
The childcare industry is one that many may not have considered as part of an investment strategy.
But, care for children and families is an invaluable service that has become enmeshed with our new standard of living. It’s a stable sector with increasing job opportunities to support the needs of a growing population.
With the growing trend of women returning to work, increased government support, and the potential return on investment, childcare centres are showing up as one of the strongest passive-income assets in an investment portfolio today.
