Investment Drivers – Childcare Properties

By Paul Higson, Telfer Young Property Valuers

Recently an article in the NZ Herald had the headline – Early childhood teacher shortage means teachers can get ‘whatever they want.’  This article focussed on the lack of qualified teachers.

With this partly due to the increase in the number of centres and partly to the falling number of trainees.

The article stated that early childhood enrolments grew by only 1.4% in the three years to last year, but the number of services grew by 7% and qualified teachers increased by 11.7%.  The article can be found at www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12150297.

It is an industry which has undergone a lot of change and expansion with the number of childcare centres nationally having grown over the last fifteen years or so as a result of government policies such as 20 Hours Early Childhood Education (ECE).  ECE services provide early childhood education to three, four and five-year-olds for up to a maximum of six hours per day for 20 hours per week per child without charging fees.

As with any investment property, the potential value is determined by the overall quality of the improvements, location and the sustainable income which is driven by the quality of service.  Privately operated licensed childcare facilities are common throughout the Tauranga area and New Zealand.  Originally, establishments tended to be developed within existing residential buildings. But over the last ten to fifteen years, many purpose built facilities have been constructed for this type of use.

To obtain a license for a childcare centre, the property has to meet a number of requirements.  These include minimum standards both in terms of building and outdoor space, construction standards in terms of size, building requirements, health and safety standards, food and drink facilities, laundry and sanitary requirements, lighting, ventilation, noise and heating, fire protection, sleeping facilities, safety and hygiene.

Ministry of Education guidelines state that childcare facilities cover several types of facilities including:

  • Kindergartens (free)
  • Play centres
  • Te Kohanga Reo
  • Childcare centres
  • Home based services (family day centre)
  • Pacific Island Early Childhood centres
  • Playgroups

Our research shows the following approximate distribution of child care facilities in Tauranga:

 

The spread of centres should be sensitive to demographic data such as the proportion of young families within a given area.

Rentals on childcare facilities are generally calculated on the basis of a rental rate per licensed child per annum.  In general terms, it has been our experience that converted residential dwellings tend to lie between $1,500 and $2,000 per child, whilst purpose-built facilities tend to lie between $1,750 and $2,750 per child.  The market is now dominated by purpose-built facilities rather than converted dwellings.  Factors which affect rent include:

  • The level of landlord provided fit out
  • The number of licensed children
  • The space provided per licensed child
  • The age of the facility
  • The location and level of competition from other centres

In general terms sales evidence of childcare centres tend to show similar levels of return to the wider market for commercial property.  However, there is a propensity for such developments to be sold shortly after construction and then to have leases in place which are of a longer term than the wider market in general.  As an investor, one issue to consider is that often such properties contain businesses which are newly established in the locality and as such do not yet have a wide client base in the suburb they are now operating in.

If you would like to obtain a valuation for rental, market or insurance purposes on a childcare property, please feel free to contact one of TelferYoung Tauranga’s commercial team.  As a nationally distributed brand, our (locally owned) firm has access to information on childcare centre sales, leasing and cost data from throughout the country.

  • Associated Realty

    Working as a team to give you a better result! Tauranga's commercial property specialists.
BDO

June 1, 2013
by: admin • Uncategorized

BNZ

June 1, 2013
by: admin • Uncategorized

Holland Beckett Lawyers

June 1, 2013
by: admin • Uncategorized

Kale Print

June 1, 2013
by: admin • Uncategorized

BDO

June 1, 2013
by: admin • Uncategorized

BNZ

June 1, 2013
by: admin • Uncategorized

Holland Beckett Lawyers

June 1, 2013
by: admin • Uncategorized

Kale Print

June 1, 2013
by: admin • Uncategorized