Opportunities in childcare sector

Not so long ago, retirement villages were being touted as a bright, new alternative for property investors.

But these days it is childcare centres which are increasingly emerging as attractive investment opportunities.

According to Colliers international investment sales broker Peter Kermode, ECE centres offer strong fundamentals at a relatively affordable price point.

He said they are a great option for smaller investors looking for a long-term passive investment.

“They offer a pretty unique proposition for investors who don’t have access to the $5 million or more typically needed to invest in a commercial property with multiple strong fundamentals.

“Childcare centres are higher yielding than residential investments and require a lot less management. Typically, the tenant pays all the outgoings.”

Not only does the sector offer long-term stability but it is growing rapidly, hand in hand with strong population growth.

The latest Ministry of Education figures show the number of ECE centres in the Auckland region has grown by nearly 35% over the last 10 years.

At the same time, the government wants to ensure that 98% of children attend an ECE service before starting school.

Now property fund manager Property Managers Group (PMG) has launched a new investment fund – the PMG Direct Childcare Fund - dedicated to the ECE sector.

PMG CEO Scott McKenzie said the sector is viewed as more stable than other asset classes because of stable, long-term leases, strong government funding and the relatively high childcare participation rate.

“From a societal perspective, the demand for quality childcare facilities has never been higher.

“The increase in the costs of living and home ownership means parents are needing to return to work sooner and seek care for their little ones.”

Yet there is a shortage of quality early learning centres in New Zealand, especially in Auckland and Christchurch, he said.

The PMG Direct Childcare Fund will partner with planners and developers to buy or develop and proactively manage ECE centres nationwide.

McKenzie said the centres within the Fund will be innovation-led centres, purpose-built from the ground up, both in terms of facilities and from an educational perspective.

“Many of PMG’s existing investors are third generation clients with the group.

“Providing an alternative investment offering which supports families and their futures is an attractive proposition to many of our current investors.”

To this end, the Fund will be buying two new build ECE properties, one in Auckland and one in Christchurch, which will be run by established ECE operators on long-term leases.

PMG is issuing 10 million units at $1 per unit and is targeting a year-one gross distribution return of 6.5% per annum for the full financial year to 31 March 2019.

The Fund is targeting a 10% internal rate of return for the full financial year to 31 March 2019.