Five Melbourne childcare centres set record with $44 million sale: Savills

Five fully leased Victorian childcare centres have sold for more than $44 million – an average of $8.8 million each — have set new national benchmarks for the sale of individual centres, according to Savills and underscoring the booming childcare market. 

The five centres at Ashwood, Mentone, Blackburn North, Hughesdale, and Carnegie – all in Melbourne’s east, were listed last month as a whole or individually in the first such sale of its type in the Melbourne market. 

Their listing came amid the federal government’s push through its $1.6 billion childcare package reforms providing families with fee relief of up to $3,400 a year.

All the centres offered long, secure leases, blue-chip tenants, and modern buildings underpinned by strong land values, said the selling agents from Savills.

The five childcare centres generated an average 5.3 per cent yield. 

The previous record sale price for an individual centre in Australia was $7 million for a Vermont property in March and before that the $6.8 million paid for a property at Camberwell in March last year, also through Savills.

According to Savills’ Julian Heatherich, who marketed the properties with Clinton Baxter and Benson Zhou, expectations the centres would sell for $7 million to 9 million each, or $50 million for the whole portfolio had been borne out with two properties selling for more than $8 million and three for more than $9 million.

“This was a brilliantly assembled portfolio combining exceptional landholdings, quality buildings, geographic diversity and a tenancy profile that is rarely available elsewhere in the commercial property market,” said Heatherich.

“Put this together with built-in rental growth and significant income tax depreciation benefits in a rapidly growing, government backed industry and they represent great value and that was reflected in the results so far.’’ 

The five centres include:

• 66-70 High Street Road, Ashwood -   15 year lease at $486,218 pa net – sold $9.1 million on 5.34% yield
• 105A Kangaroo Road, Hughesdale (above) -   20 year lease at $545,879 pa net– sold $9.75 million on 5.6% yield
• 103-107 Koonung Road, Blackburn Nth -  20 year lease at $498,015 pa net– sold $9.28 million on 5.37% yield
• 1 Toolambool Road, Carnegie -   20 year lease at $438,697 pa net– sold $8.2 million on 5.35% yield
• 37 Venice Street, Mentone -   20 year lease at $367,822 pa net– sold $8 million on 5.44% yield

The tenants include several leading companies, including the ASX-listed G8 Education, national provider, Guardian Early Learning, and Nino Early Learning Adventures.

He said investor appetite for well-located childcare investment properties was as strong as ever, with an increasing number of local and off-shore investors appreciating the combination of fundamental investment attributes available within this booming sector of the market. 

Heatherich said key drivers of the childcare market had been the rapidly growing nature of the childcare sector, the confidence that comes from the strong support the sector has from the federal government, and Victoria’s strong population growth.

An estimated 1.67 million children attended approved care in 2015‑16, while approximately $7.3 billion was provided by governments in childcare fee assistance, according to Department of Education and Training data.

The commercial childcare property market has grown into a standalone asset class over the last few years with occupancy levels positive and income levels stable, adds Ray White Commercial’s head of Research, Vanessa Rader.

In New South Wales, the demand has continued to be robust in 2017 with strong yield compression, particularly in metropolitan Sydney, according to research by Ray White Commercial.

The real estate agency's NSW director, Michael Ajaka, said almost $120 million changed hands in the NSW childcare market in 2016 with 80.22 per cent of assets located within metropolitan Sydney.

“The start of 2017 looks to continue this increase in activity with the first four months representing more than $25 million in sales with a heavy weighting (61.03 per cent) towards regional areas,” Ajaka said.