Childcare centre asset class heats up in WA, new Ray White Commercial report shows

Childcare centres are encouraging more commercial property investors to come out and play in WA.

New research by Ray White Commercial — the first of its kind for WA — has found interest in childcare centres as an income-producing asset class has risen in the second half of 2017, emulating trends observed in the eastern states for the past two years.

“The WA market is still embarking on its supply phase with a high volume of stock recently entering the market with a future pipeline of stock yet to be completed across both the metropolitan and regional parts of the state,” says Ray White Commercial Head of Research Vanessa Rader in the new Between the Lines WA Child Care November 2017 report.

“Demand to purchase is high as both local and interstate investors can see the value and attractive yields still on offer.”

Ray White Commercial (WA) Director Stephen Harrison says it is easier to obtain finance for childcare centre investment compared with other new and sought-after asset classes, such as service stations.

The combination of low interest rates and the quest to seek higher yielding, lower-risk investments has also drawn investors to childcare centres.

“Offering a variety of price points depending on the size of centre, relative ease in financing and attractive yields there is a growing pool of buyers hungry for childcare investment,” Mr Harrison says.

“With the WA population expected to grow by close to 550,000 people by 2026 there will be an increasing need for childcare and early education facilities across Perth and major regional centres.”

Ray White Commercial is monitoring 63 childcare development projects across WA, 31.75 per cent located in regional areas.

There are 14 projects under construction, 32 projects with development approval and a further 17 in the planning phase.

Ms Rader says capital values show a greater range in the metropolitan area, attributable to the higher land cost, ranging between $20,000 per child and $46,650 per child. The average of $28,387 per child represents a competitive yield average of 7.05 per cent.

Regional WA values are between $15,600 and $35,400 per child, with an average of $27,000 per child, and achieve a slightly higher average yield of 7.29 per cent, extending beyond 9.00 per cent depending on the quality of the lease covenant and location.

Ms Rader says investor demand and limited stock are expected to result in downward pressure on yields into 2018.

“With investment in this asset class on the east coast achieving rates as low as 3.50 per cent, the expectation for WA to achieve rates in the low-to-mid 6.00 per cent range in the short term is high,” she says.