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Suburban toddler education centre for sale as early childhood sector booms

A childcare centre in the heart of northern Te Rapa's commercial and industrial zones is for sale at a time when demand for early childhood property developments is high and supply is tight, pushing prices upwards.

In a booming location at 19 Kahu Crescent, the near new centre is tenanted by experienced operator Kids Cave on a new lease in an area that is experiencing unprecedented growth and is close to The Base shopping centre and highway links.

Kids Cave operates its child care centre from near new freehold 510 square metre purpose-built premises constructed by GJ Gardner in 2013 to exacting standards and 100 per cent of the New Building Standard. The centre sits on a 2002 square metre site that includes 24 carparks.

Returning $160,000 plus GST annually, the centre is being marketed for sale by auction on March 12 through Bayleys Hamilton salespeople Alex ten Hove, Mike Swanson and Bayleys Auckland salesperson Ben Wallace.

Mr ten Hove said in the strong early childhood growth sector the stability of long leases and near new buildings are coveted in the northern side of the city where commercial and industrial development is at an all-time high and places for children are sought after.

“Recent sales of freehold properties and early childhood businesses has been strong but the rise in property values and set-up costs has meant yields tracking downwards.”

Kids Cave, which promotes a personal approach to childcare for preschoolers, has an established background in centres with another property in Hamilton and one in New Plymouth. It started a new six year lease at Kahu Crescent in August last year and has two six year rights of renewal, with expiry in 2037. During its lease term there are rent increases to CPI every two years and market reviews every four years.

Sitting in Te Rapa's industrial zone, Kids Cave centre has a 2013 resource consent for education and training facilities and the property has a Hamilton City Council valuation rating of $3.2 million. The area is close to all arterial routes including the Wairere Drive and Pukete Bridge feeder road that runs from east to west of the city.

Mr Swanson said the value of a childcare business is closely tied to the physical property it occupies and the resource consent for childcare use.

“Most early childhood education centres are single-tenant, hands-free investments, with the tenant managing all internal and external property-related issues. Once a centre is developed and sold, it tends to operate under the same owners for lengthy periods.”

Early childhood education is big business throughout the country. It’s a seller’s market as developers and investors capitalise on the surge in demand for places at childcare centres.

There are 4,596 early childcare education services, 141 of which were newly licensed in 2016. On average 152 services open across the country each year.

“The sector is viewed as more secure than other asset classes, because of lease strength and the country’s high childcare participation rate.” Mr Wallace said.

“Building obsolescence in childcare facilities is also low, with most businesses benefiting from the full economic and physical life of their premises.”

Since 2008, the number of children enrolled in childcare education centres has risen from 93.6 percent to 96.6 percent, while time spent in the centres has reached an average of 21.7 hours a week, up from 13.5 hours in 2000.

Public funding for the sector is reliable and secure, rising from $860 million in 2008 to almost $1.63 billion. The government committed an extra $396.9 million in last year’s budget to fund care for an extra 14,000 children last year and this year. Its goal is 98 percent of children attending an early childhood service before starting school.

Mr ten Hove said population growth is also a key determining factor. “Hamilton’s population is growing 30 percent faster than the New Zealand average and the reality for many families is signing up for a childcare centre place before their child is born.

“This will undoubtedly put pressure on existing childcare providers, but the boom presents an opportunity for smart property investors.”

Hamilton is growing by an average of 40 new residents a week and is expected to have a population of 194,200 by 2033, consisting of more youth than Auckland, Tauranga, Christchurch and New Zealand as whole.

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