When most investors think of commercial property, their minds jump to the usual suspects: office buildings, retail strips, or industrial warehouses. But there’s another asset class that’s steadily gaining momentum—childcare properties.
While childcare might not be the first thing that springs to mind for commercial real estate, the fundamentals behind this niche are strong. In fact, when you dig into the drivers, it becomes clear why these assets are increasingly appealing for property investors looking to diversify and secure long-term income.
1. Childcare Centres Provide Essential Social Services
Childcare is a critical part of modern Australian life. As more families rely on two incomes and the number of working mothers continues to rise, the demand for high-quality childcare grows in tandem. This essential nature offers investors a level of stability not always found in other commercial asset classes.
Key drivers include:
- Steady population growth, particularly in family-oriented areas
- Increasing female workforce participation
- Lifestyle changes that make childcare a necessity rather than a luxury
2. Government Backing Boosts Investor Confidence
Childcare is not only an essential service—it’s also one heavily supported by the Australian Government. This ongoing commitment to the sector has made it a magnet for investor interest, particularly during economic downturns or periods of uncertainty.
Some reasons for investor confidence include:
- Ongoing federal subsidies and funding for families
- Bi-partisan political support for workforce participation
- Introduction of subsidy reform packages during and after COVID-19
These funding initiatives provide a buffer against risk and reinforce the sustainability of childcare businesses operating within leased properties.
3. Strong Yields and Tax Advantages
Childcare assets have historically outperformed other asset classes in terms of rental yield. Before the pandemic, the sector recorded average annual revenue growth of 3.7%, with long leases providing consistent income streams.
On top of that, purpose-built childcare centres often allow for generous building depreciation, leading to substantial tax deductions for owners.
4. Long-Term Leases and Experienced Tenants
Most childcare properties are leased to professional operators under long-term agreements—often up to 10–15 years—with fixed annual rental increases, commonly around 3%. This provides predictable cash flow and reduced management effort.
Investors also benefit from:
- Experienced tenants who maintain the property to meet licensing standards
- Low tenant turnover compared to retail or office tenants
- Fixed growth income through built-in lease escalations
5. Redevelopment Potential
Should market dynamics shift or the centre no longer operate as a childcare facility, these sites can often be rezoned or redeveloped for residential or mixed-use purposes. While this depends on local council regulations, it provides flexibility and a future upside for investors.
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The State of Childcare in Australia
There are three main types of childcare centres approved under the Australian Department of Education:
- Family Daycare – home-based care, popular in regional areas
- Centre-Based Daycare – includes long day care, occasional care, and preschools
- Outside School Hours Care (OSHC) – for before/after school and school holidays
These facilities receive government subsidies and cater to the growing needs of families. They’re also subject to strict compliance and licensing requirements, making them attractive for investors seeking well-managed assets.
Check out “Crunching the Numbers: Positive Cash Flow vs. Negative Gearing“
COVID-19 and Its Impact
Despite the disruption caused by the COVID-19 pandemic, the childcare sector proved remarkably resilient. Government support packages helped operators weather the storm, and demand for places quickly rebounded.
Key developments during the pandemic include:
- Free childcare under the Early Childhood Education and Care Relief Package
- Ongoing subsidy support under CCS and ACCS programs
- State-level assistance (e.g., NSW’s $500 before/after school care vouchers)
These interventions signalled the government’s long-term commitment to the industry, helping reassure private and institutional investors alike.
Assessing Development Opportunities
For those looking to acquire or develop childcare assets, location and feasibility analysis is crucial. Key factors to consider include:
- Land suitability – block size, contours, proximity to family-centric amenities
- Town planning and zoning – including overlays and title restrictions
- Catchment needs assessments – measuring local demand vs. current supply
- Operational risks – like occupancy rates and nearby competition
Engaging an experienced operator early in the development process is also important to secure long-term lease commitments and financial viability.
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Risks and Considerations
Like any investment, childcare centres are not without risk. Factors to keep in mind include:
- Economic downturns – may reduce attendance or government funding
- Changing workforce habits – remote work could impact demand
- Overdevelopment – leading to saturation in some local markets
- Population growth slowdowns – reducing demand in the long term
That said, with solid research, careful site selection, and alignment with reputable operators, these risks can be mitigated.
Childcare property investments are no longer just a niche—many investors now see them as core components of a balanced commercial property portfolio. Backed by strong demand drivers, long leases, solid yields, and government support, these assets provide both income and stability.
As institutional investors begin to eye this sector more closely, early adopters among private investors may benefit from capital growth and compressed yields in years to come. For those willing to look beyond the traditional asset classes, childcare properties offer a compelling, socially responsible, and financially rewarding opportunity.
