The growing demand for childcare centres is no longer just from parents jostling to get their kids on waiting lists. It’s increasingly also coming from investors looking to get a slice of this burgeoning real estate market.
In the past year, more than $200 million worth of this type of property has changed hands across Australia. Almost $120 million of this was in New South Wales alone, with 80.22 per cent of these assets located in metropolitan Sydney.
And it’s not showing any sign of slowing down – in the first four months of 2017 there were $25 million worth of sales for this asset class, according to research from Ray White Commercial.
There are a number of reasons for this increasing demand for childcare centres.
First of all societal trends are leading to a growing demand for this type of service and property.
Increased government funding, higher birth rates and a greater number of females returning to the workforce have created a demand for childcare services like never before. And this demand will only become greater with an estimated 500,000 children to be added to the zero-to-five-year-old population over the next 15 years, according to figures published in the 2016 Colliers International Whitepaper on childcare in Australia.
In addition, typical long-term leases make childcare centres an appealing option to investors, as do the strong yields for this type of property. According to Ray White Commercial NSW, yields average 4.85 per cent in Sydney metropolitan areas and 6.07 in regional areas.
It’s also a relatively low maintenance asset for investors, as the tenant is responsible for the required health and safety standards as well as purchasing and maintaining indoor and outdoor assets.
Finally, investors are also becoming increasingly aware of the depreciation benefits they can claim from such properties. These deductions are often in the hundreds of thousands of dollars over the life of the property and even into the millions for some larger centres.
In the last two years there has seen a notable increase in the number of childcare centres ordering a depreciation schedule. There was a 67 per cent increase in the 2015/16 financial year and a further 37 per cent increase in the year prior.
This increase is supported by findings from the Colliers International Whitepaper, which noted a 4.6 per cent annual growth rate for this industry.
It appears childcare centre operators are realising the value of claiming depreciation to improve cash flow and remain competitive in what is becoming a sought-after market.
Many childcare centre owners are able to claim hundreds of thousands to millions of dollars in deductions over the life of the property.
Common items located in childcare centres, such as artificial grass, sandpits and play equipment, are unexpected yet valuable sources of additional income for operators and owners.
Other childcare centre items that can be claimed include food processors, bathroom accessories, refrigerators, ceiling fans, computer equipment, washing machines, partitioning, dishwashers and vinyl, among many other assets.
Both owners and tenants of childcare centres can claim depreciation deductions, as can those running child care services from their homes. Owners can claim capital works deductions while tenants can claim depreciation for plant and equipment assets, such as those listed above.
For operators who might be struggling with cash flow, depreciation deductions can provide additional income to help with day to day expenses and business operations, which should prove beneficial in what is becoming an increasingly competitive industry.