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NSW childcare centre snapshot shows slide in sales volume

Investor interest is cooling towards the hot NSW childcare centre market, new Ray White Commercial research shows.
The sales volume for this popular asset class dropped more than 36 per cent in 2017 compared with the previous year’s peak, according to the Between the Lines — NSW Childcare Overview report.
In 2016, $126.241 million in sales was recorded in NSW with close to $90 million achieved in the second half of the year, the data shows. In 2017, $80.605 million changed hands.
Ray White Commercial head of research Vanessa Rader says interest in regional stock spiked during 2017, resulting in downward movement in investment yields.
“In 2018, the few transactions recorded have all been in regional locales,” Ms Rader says.
“The sales volume in the first half of 2017, including metropolitan and regional deals, was more than $50 million. So far in 2018, this figure has approached $5 million.”
However, the fundamentals of the market remain robust, Ms Rader says.
“Childcare is within reach of more families and increasingly, parents consider that early learning programs are a necessity prior to children starting traditional schooling,” she says.
“The increase in demand has ensured vacancy levels remain minimal. Childcare assets have earned a reputation has stable earners and are typically maintained to a high standard by tenants.”
Of the 445 childcare centre projects in the development pipeline in NSW, more than 76 per cent are in the greater metropolitan Sydney area. Most are either at the DA-approved or DA-applied stage.
Ray White Commercial NSW director Michael Ajaka says after a prolonged period where childcare property saw limited development, there had been high supply over the past two years with the many projects still in the pipeline.
“There are 34 projects currently under construction in NSW, with 25 of those located in Sydney. Completion is expected over the next 12 to 18 months,” Mr Ajaka says.
Ray White Commercial NSW manager Stephen Moses says metropolitan yields declined slightly in 2017 from 4.00 per cent to 4.50 per cent as yields in regional areas edged upwards from 6.07 per cent to 6.71 per cent.
In regional areas, the capital value on a price-per-child basis is in the range of $30,000 to $40,000. Metropolitan markets with low vacancy rates dictate a higher value — between $60,000 and more than $100,000 per child in some cases.
“The demand for childcare centres as an investment asset is expected to gain more momentum in 2018,” Mr Moses says.
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