5 centres sell for ave. $8.8 million on ave. 5.3 percent yield

The sale of five of six fully leased Victorian childcare centres for more than $44 million – an average of $8.8 million each and on average 5.3 percent yield - have set new national benchmarks for the sale of individual centres.

According to Julian Heatherich of Savills CBD & Metropolitan Sales, who marketed the properties with Clinton Baxter and Benson Zhou, expectations the centres would sell for $7 million to 9 million each, or $50 million for the whole portfolio had been borne out with two properties selling for more than $8 million and three for more than $9 million.

The previous highest recorded price for the sale of an individual centre in Australia was the $7 million paid for a Vermont property in March and before that the $6.8 million paid for a property at Camberwell in March last year, also through Savills.

The five centres at Ashwood, Mentone, Blackburn North, Hughesdale, and Carnegie – all in Melbourne’s east, were put to market last month as a whole or individually in the first such sale of its type in the Melbourne market.

The centres, which came to market as the Federal Government pushes through its $1.6 billion childcare package reforms providing families with fee relief of up to $3,400 a year, offered long, secure leases, blue-chip tenants, and modern, quality buildings underpinned by strong land values.

Mr Heatherich said the properties had presented an unprecedented opportunity to take a strong foothold in Australia’s booming child care market.

“This was a brilliantly assembled portfolio combining exceptional landholdings, quality buildings, geographic diversity and a tenancy profile that is rarely available elsewhere in the commercial property market.

“Put this together with built-in rental growth and significant income tax depreciation benefits in a rapidly growing, government backed industry and they represent great value and that was reflected in the results so far,” Mr Heatherich said.

The five centres include:

• 66-70 High Street Road, Ashwood - 15 year lease at $486,218 pa net – sold $9.1 million on 5.34% yield
• 105A Kangaroo Road, Hughesdale - 20 year lease at $545,879 pa net– sold $9.75 million on 5.6% yield
• 103-107 Koonung Road, Blackburn Nth - 20 year lease at $498,015 pa net– sold $9.28 million on 5.37% yield
• 1 Toolambool Road, Carnegie - 20 year lease at $438,697 pa net– sold $8.2 million on 5.35% yield
• 37 Venice Street, Mentone - 20 year lease at $367,822 pa net– sold $8 million on 5.44% yield

Mr Baxter said the tenancy list included several highly regarded companies including ASX listed G8 Education, national provider, Guardian Early Learning and Nino Early Learning Adventures.

He said investor appetite for well-located childcare investment properties was as strong as ever, with an increasing number of local and off-shore investors appreciating the combination of fundamental investment attributes available within this booming sector of the market.

Mr Heatherich said key drivers of the childcare market had been the rapidly growing nature of the childcare sector, the confidence that comes from the strong support the sector has from the Federal Government, and Victoria’s strong population growth.

March figures from the ABS put Melbourne’s population growth at 2.4 percent in 2016 – the fastest in the nation - (Brisbane grew 1.8 percent and Greater Sydney 1.7 percent) while four of the five fastest growing suburbs in Australia were in Victoria.

And according to Department of Education and Training data, an estimated 1.67 million children attended approved care in 2015-16 while approximately $7.3 billion was provided by governments in childcare fee assistance.

“Add secure 15 to 20 year leases and a statutory obligation for lessees to fastidiously maintain in the best possible order a facility which houses our young children, and the reason for the increase in demand is very clear,” Mr Heatherich said.