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NSW childcare costs soar as property market pressures create ‘perfect storm’

By Staff Reporter
27 June 2024 | 11 minute read

The childcare sector in NSW is reportedly running hot, driven by a confluence of market factors that are not only impacting the nation but also condensing activity in the state.

As reported in a new release from independent property valuations firm M3 Property, childcare rates have been trending up, bringing pressure to a sector that desperately needs to expand.

“Current market influences are culminating to drive up daily rates in the New South Wales childcare market. The result may be less affordability for families, despite government funding initiatives. However, a growth in rates is positive for market participants overall,” explained James Ruben, national director of specialised assets at M3 Property.

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According to Ruben, a primary driver of the rate hikes is demand, with the need for childcare places in NSW outstripping the current supply on the ground. And while there’s an effort from private businesses to develop more centres, construction delays in delivering purpose-built facilities are not helping to alleviate the supply issues.

And the inflationary environment has also contributed to the rise in construction costs, which in turn is driving up rents for new childcare centres.

“Increasing rent is placing upward pressure on daily rates required to secure well-located, quality facilities which are in demand,” Ruben stated.

New, purpose-built facilities have also been placing pressure on the existing businesses in the sector, with Ruben anticipating that more existing centres will undergo refurbishments and upgrades to remain competitive against new offerings.

Added to these pressures, long-term lease structures with “ratchet clauses” are another significant factor contributing to the rise in daily childcare rates. In NSW, these common lease structures have resulted in strong rental growth following rent reviews, with limited opportunity for alignment to market. This has added to the rental burden on childcare businesses, further translating to growth in daily rates.

Taken together, these property-related factors have created what Ruben described as a “perfect storm” for the sector. With little relief in the form of new facilities on the horizon, Ruben noted that opportunity exists for market participants looking to assist an essential service while also benefiting from its long-term stability.

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