Buyer demand for development-approved childcare centre sites in Sydney is heating up, with recent sales showing there have been close to record-high sales.
During 2020 and 2021, DA-approved childcare development sites in Western Sydney were typically trading for around $40,000 per place, but recent sales are at or above this level, despite price falls in almost all other sectors. Increased government subsidies and a push for return to work is seen to have contributed to this high demand for development approved sites.
Knight Frank Director and Joint Head of South Sydney Anthony Pirrottina said there had been a number of recent sales across metropolitan Sydney totalling nearly $9 million, some recent ones by the Knight Frank team being 131 Excelsior Street, Merrylands, which sold for $2.52 million to Educ8te Pty Ltd, a local operator/ developer, and 60 Park Street, Peakhurst, which sold for $2.95 million to a private operator. Both saw fierce competition from operators seeking to increase their presence across metropolitan Sydney.
Other notable sales include a site approved for a 52-place centre in Toongabbie, which was sold for $1.9 million and a site approved for a 50-place centre in Guildford which achieved $1.51 million.
All four development sites traded within the last month.
“During the heat of the commercial market in 2020 and 2021, DA-approved childcare development sites in Western Sydney were typically trading for around $40,000 per place,” said Mr Pirrottina. “These recent sales are at or above this level, showing that this market has held or increased in spite of other sectors experiencing notable declines in pricing. So while the general commercial market has seen clearance rates as low as 50 per cent and transaction volumes down by a similar amount, the childcare market continues to go from strength to strength."
“In addition, developers selling these sites are seeing the increased upside in having approval for a childcare centre, as generally these properties would otherwise be sold as freestanding houses, which have fallen in value by as much as 10 to 15 per cent in some parts of Sydney.”
131 Excelsior Street, Merrylands NSW
Rents that operators are willing to pay for centres have also skyrocketed, increasing by as much as 20 per cent in some parts of Sydney providing strong returns for owners. A typical purpose-built centre 15 to 20 kilometres from the Sydney CBD would have previously generated around $4,000 per place per annum for a landlord, however it appears we are now seeing that same centre achieve $5,000 per place per annum. Tenants are able to cover this increase thanks to next-to-no vacancy, increasing day rates and a squeeze as operators scramble to enter into new markets.
"What remains to be seen is where the value for the finished childcare investments will sit" said Mr Pirrottina. “The cost of debt continues to rise due to interest rate hikes, and as such investors will need higher yields to cover rising mortgage repayments, thus reducing how much they would be willing to pay for new investments.”
