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6 factors driving positive growth in childcare assets

By Sebastian Holloman
04 April 2024 | 12 minute read
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There’s plenty of factors driving gains in the childcare sector, and investors are beginning to take note, shares Colliers.

The recently released Colliers childcare report has delved into the dynamics of the childcare market, particularly in outlining recent market trends in the high-growth Western Australian market that property investors should consider.

According to the Australian Bureau of Statistics (ABS), Western Australia alone recorded a total population of approximately 169,100 children under the age of four in the year ending June 2023.

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Further projections forecast 6.5 per cent growth in this age cohort by 2031 in the state which would necessitate a proportionally larger workforce to service the increasing numbers of children.

Colliers research manager, Yashwini Halai, stated: “The recent surge in demand for childcare services nationally, as a result of population growth and both parents going into the workforce, has caught the attention of investors.”

Colliers state chief executive for Western Australia, Richard Cash, also stated: “The childcare market has been highly desirable by a range of investors in Western Australia.”

“Institutional and private investors have capitalised on childcare investments in the past two years, expanding their portfolios and development pipelines with key assets in WA,” he remarked.

Revenue growth of the industry has been accelerated by the changes in the childcare subsidy, which Colliers reported as creating a wealth of opportunities both within Western Australia and across the country. The firm cited data from IBISWorld, which anticipates revenue growth of 6.2 per cent in 202324 expected to eventually grow to 3.1 per cent per annum over five years towards 202829 to an estimated $20.3 billion nationally.

So, what are the biggest factors driving this growth?

1. Industry consolidation
Industry consolidation has been very evident and is likely to continue as a result of merger and acquisition activity of childcare services, the report stated.

Colliers noted many new for-profit businesses within the sector are succeeding in changing market dynamics through capitalising on existing economies of scale and acquiring small or new centres.

2. Growth in the childcare industry workforce
Higher staff-to-child ratio requirements have been deemed by Colliers as one of the prime influencers behind the growth of the childcare industry workforce.

Additionally, as part of the federal budget 202324, $1.6 billion has been allocated towards funding for professional development training programs supporting early childhood education and care.

3. Changes due to reform
Colliers also proclaimed that reforms are likely given the recent release of a Australian Competition and Consumer Commission (ACCC) report, which highlighted that rapid growth of inflation and wages was said to have increased the cost of childcare fees and subsequently decreased the effectiveness of childcare subsidies.

While industry bodies have urged the government to fund a short-term 10 per cent pay rise for early childhood educators, the ACCC report recommended the government consider an array of different regulator measures benefitting a diverse range of families instead of opting for a ”one size fits all” approach.

4. Rise in premium centres and target niche markets
Among the proliferation of childcare centres, premium centres that cater towards niche markets have come to prominence, offering medical services, cooked meals and other such perks for children and parents alike to boost revenue.

Other emerging trends cited by Colliers include holistic service offerings such as yoga, music and gardening for children.

5. Declining family day care services
Colliers acknowledged that family day care services have continued to decline in market share, likely as a result of tighter regulations and compliance checks.

6. Refurbishment and renewal of existing childcare centres
Owners are increasingly utilising capital to renew and refurbish existing child care centres in order to maintain existing customer bases rather than completely starting anew.

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