Market gap serviced by service developments

A rise in child care, aged care, hospital and student housing developments are helping to ease concerns surrounding residential oversupply.  

In the past six months, a range of incredible service development sites have landed big sales in Sydney, Melbourne and Brisbane.

Recently, four childcare centres in Queensland sold separately for approx. $6 million each. Development approved sites for boarding houses have also sold in Sydney’s Surrey Hills and Ashfield. These transactions, coupled with some great current opportunities, indicate that the service development sector in good stead.

Chris Buckley of Tract Consulting has noticed a rise in service style developments - “whilst the market has eased a bit with inner city unit development, of which there has been substantial change in the inner suburbs, it is the services that are now picking up the slacks. Growth in childcare (for example) is quite marked.”

Brian McInally, associate director of Child Care transactions services at Colliers International, stated that while many factors led to the category’s growth in recent years, the demise of ABC Development Learning Centres in 2008 was a significant catalyst.

"What was a highly fragmented sector, has gradually seen consolidation and become an appealing investment class for institutions," he said.

There are a number of trends that are driving growth in the industry; government funding being paramount. The federal government's new Childcare Subsidy System was projected to spend $8.8 billion in subsidies next financial year, a figure forecast to rise to $10 billion by 2020.

Associate Director for Burgess Rawson, Ingrid Filmer stated "Government subsidies underpin rents and that's why we are seeing such interest in it (childcare) as an investment class,"

Population growth on the urban outskirts of cities is also driving the development of childcare centres.

Data from Burgess Rawson shows that average yields have slowly reduced from around 8.5% per cent in 2012 to 5.84% this year.

Although yields have softened, the increased demand and key fundamentals of the sector remain to create a long-term lucrative and profitable sector.