Childcare centres are experiencing a sales frenzy according to commercial real estate agency, Burgess Rawson.
The agency has sold 11 childcare assets in the past 10 days, totalling over $43 million.
Sales completed were in Mickleham VIC ($5.9 million, yield 6.23%), Shepparton VIC ($3.212 million, yield 5.98%), Doreen VIC ($4.88 million, yield 5.46%), Empire Bay NSW ($3.2 million, yield 6.12%), Caroline Springs VIC ($4.91 million, yield 5.43%), Port Macquarie NSW ($4.17 million, yield 6.4%), Southport QLD ($2.85 million, yield 5.85%), Strathpine QLD ($6 million, yield 5.90%), Oxenford QLD ($3.551 million, yield NA) Murray Bridge SA ($1.53 million, yield 6.71%) and Hahndorf SA ($2.87 million, yield 6.19%).
Auction clearance rates continue to average over 90 per cent for childcare property assets, which is in stark contrast to falling residential auction clearance rates, particularly in Sydney and Melbourne.
Adam Thomas, Associate Director at Burgess Rawson, said that they were continuing to experience high levels of enquiry for childcare assets, particularly in South Australia.
“Supply is simply not meeting the demand as yields continue to compress,” he explained.
“More than 1,000 enquires were received for the 11 sales portfolio, from local investors and Asian markets. The standout sale was Strathpine which sold for $6 million.
“The childcare market in South Australia is an emerging market and is attracting wide spread attention, particularly from Melbourne investors looking for sharper yields. The yields for the sales in Murray Bridge and Hahndorf are eclipsing other states averaging over 6 per cent.”
Mr Thomas said South Australia was also the only state that would introduce zero stamp duty for commercial property assets from 1 July 2018.
“Investors have recognised this opportunity and are actively seeking low yield commercial assets to add to their portfolio,” Mr Thomas continued.
“The figures for investors to purchase in South Australia are very compelling including zero stamp duty compared to approx. 5 per cent in other capital cities. Rents per child in South Australia average around the low $2,000 mark, compared to Melbourne which is above $3,000.”
The federal government’s new funding model which comes into effect on 1 July 2018 will give families earning up to $120,000 an 80 per cent rebate for childcare fees.
According to the Australian Government Department of Human Resources, the federal government will cover up to 50 per cent of the out of pocket child care expenses up to an annual limit of $7,613 per child (conditions apply).
Burgess Rawson’s 2017 childcare report highlighted sales yields that have compressed from a median 7.75 per cent in 2010 to 5.75 per cent last year, across metropolitan and regional locations.
Natalie Couper, Sales Agent at Burgess Rawson, said childcare properties were seen as set and forget assets that have a low risk profile with an upside. “They are located on large areas of land in high built-up areas (averaging around 2,500 sqm), quality tenants pay all of the outgoings and rents are guaranteed by the federal government,” she explained.
“In addition, the structure of leases is often over 10 years with an option to extend by a further 10 to 20 years to offer security of tenure, the population is increasing and the federal government has a mandate to increase workforce participation.”
All levels of government are actively investing in childcare and early education. The federal government is projected to spend $8.8 billion in the 2018/2019 year, and this is forecast to be as much as $10 billion by 2020 (Source: Budget paper 2017/2018).
Over 100 punters attended the auction of 1 Oxley Road, Hawthorn last week, which saw 7 buyers drive the price up to approx. $11,867 per sqm – a new benchmark for land rates in Hawthorn for properties over 1,000 sqm, according to selling agents Gorman Kelly.
The property comprises a well maintained 1980’s building on an island site only moments from the Glenferrie Road retail precinct and public transport.
Gorman Kelly Director, Aldo Gallante said the asset provides passive income and development upside.
“This was an extraordinary result achieved for an office building in the backstreets of Hawthorn despite changing bank sentiment and recent market cautiousness,” Mr Gallante explained.
“This unique property was purchased by a local family who were thrilled to buy a long term investment close by.”