Demand for childcare centres as commercial real estate investment assets in New South Wales has continued during 2017 with strong yield compression, particularly in metropolitan Sydney.
Ray White Commercial Head of Research Vanessa Rader said the commercial childcare property market has evolved as a standalone asset class over the last few years with occupancy levels positive and income levels stable.
“For an investor, though the yields can be sharp, the benefits of owning a childcare centre property head leased by a quality tenant with stable earnings are high,” Ms Rader said in the Between the Lines – NSW Childcare Overview May 2017 report.
“The required health and safety standards, quality indoor/outdoor facilities and their maintenance is the responsibility of the tenant and makes this asset class an attractive investment choice.”
Ray White Commercial NSW Director Michael Ajaka said almost $120 million changed hands in the NSW childcare market in 2016 with 80.22 per cent of assets located within metropolitan Sydney.
“The start of 2017 looks to continue this increase in activity with the first four months representing more than $25 million in sales with a heavy weighting (61.03 per cent) towards regional areas,” Mr Ajaka said.
“The underlying fundamentals of the market are robust. With the current uncertainty surrounding what is the best asset class to invest in to maximise returns during this low interest rate environment, we expect activity levels to continue at a high rate though this is dependent on the continued supply of quality stock to the market.”
Ray White Commercial NSW Senior Sales Executive Stephen Moses said as transactional activity has increased and competition remains high for childcare assets, investment yields have been tightening.
“During 2017, the average yield achieved in metropolitan Sydney is 4.85 per cent while regional areas average 6.07 per cent within a broad range between 4.0 and 7.0 per cent,” he said.