Childcare sector ripe for consolidation
Overall, investor appetite for UK Alternatives remains incredibly high, with childcare an increasingly favourable sector which has grown rapidly in the past decade and offers investors significant opportunity, according to the latest report on Alternative Investments in the UK by specialist business property adviser, Christie & Co.
The report, UK Alternatives Investment Index: H1 2019, provides an overview of currently achievable yields on prime and secondary investments across various subsectors. The report finds that the average yield on prime investments across UK alternatives as a whole ranged between 3.5% and 7.5%, with childcare demonstrating yields of 4.5% to 5.5% for prime and 5.5% to 8.5% for secondary investments.
Christie & Co notes that the childcare sector’s biggest draws among investors are the positive economic drivers, with families increasingly becoming reliant on dual incomes, against a backdrop of positive government support, as evidenced by the introduction of ‘30hrs childcare’ and the increasing perception of childcare as essential infrastructure in modern life. Despite being a relatively new market, the last two years, in particular, have seen a surge in interest from investors, especially as the range of day nursery lot sizes for sale appeals to a wider range of buyers.
At the corporate end of the market, Christie & Co’s report finds that there is equally high demand for institutional leases to leading operators, with yields shown to be steadily compressing, and many of those in prime locations achieving yields below 5%.
Courteney Donaldson, Managing Director – Childcare & Education at Christie & Co comments, “The UK day nursery investment market is incredibly immature, in comparison to many other established alternative investment classes. While there have been spates of transactional activity over the past decade, the fragmentation of the sector has thus far curtailed institutional investor activity to a larger degree. However, as the sector evolves and becomes more ‘corporatised’ a significant opportunity is presented for investors seeking solid income from this resilient sector, While there has been much international investor interest in the day nursery sector as an asset class, as of yet there has only been one notable fund of note and size established and sold, within the past 10 years or so. Conversely, in other parts of the world, such as Australia, the early years investment market is well established, and incredibly buoyant. While it may be some time before we see the UK nursery investment market maturing, those making an entrance into this space, could well advantageous early gains.”
