Buyers clamour for 'recession-proof' childcare centres

Childcare centres in the Bay of Plenty and Waikato are in high demand and buyers are being left empty handed, says Linda Harley, a business broker with Affiliated Business Consultants in Tauranga. "The childcare sector is very attractive because it is effectively recession-proof with a high proportion of income coming from government funding," Harley said. "The centres operate five days per week and offer 25 to 30 per cent return on investment when well managed. "The market has been very busy, especially over the last three months, with a number of requests to purchase centres in the Bay of Plenty and Waikato," Harley said. "Inquiries are coming from people with a range of backgrounds including centre owners seeking to expand, teachers wanting to own a centre and investors looking for low-risk businesses with high managed profits." Centres in the Waikato region appear to be most sought after particularly in Hamilton, Cambridge and the northern townships.

Many of the buyers are Auckland-based and Waikato is within easy commuting distance. Harley said Tauranga Papamoa, Te Puke and Katikati were the hottest spots in the Bay of Plenty. "Tauranga is one of the fastest growing regions in the country, especially in the Papamoa area where plans for new schools have recently been announced by the National Government."

A lot of inquiries come from buyers who have considered building a new centre in Tauranga but land values and resource consent limitations make purchasing existing centres a more appealing option. Owner-operated centres are attractive investments where owners can undertake administration and maintenance in their own time with staff management and education completed by qualified teaching staff.

"The childcare sector is not without its challenges, with some of the biggest being able to meet government staffing requirements by having at least 50 per cent of staff qualified and having enough children on the roll," Harley said. "An owner who operates the centre with effective business management principles will do well. This includes engaging with the community to promote the centre and its services to attract parents and their children, recruiting, training and retaining staff through good employment practices and managing the operational costs to optimise the services being provided."

Harley said her database was growing every day with hopeful buyers. "Recent sales have been completed with multiple offers presented to owners. This gives them choices as to who will take over the ownership and management of their centre and it also maximises their exit price." Investors are keen on freehold childcare centres because they generally offer a long lease in the range of 12 to 24 years with a yield of 8-11 per cent. Obtaining resource consent for childcare centres is an expensive and sometimes difficult process but this gives the landlord certainty that a tenant will be there for the long haul. This is in stark contrast to the commercial freehold investment market where For Lease signs are proliferating in the current climate.

Harley said the level of investment for a childcare business could range from $300,000 for a small licensed centre to $1 million plus for one with a 70-child-plus licence in purpose-built premises.

"While the buyers seeking to invest go across the range, the most common size is for centres with a licence of 40-plus children with a mix of under-2-year-olds and over-2s," she said. Despite the economic downturn, recent business appraisals, especially in areas where there are a high number of working parents, are not showing any decline in rolls.

"I just wish I had more of them to offer waiting purchasers," Harley said.