Similar plans are afoot in Scotland and Wales. Childcare is high on the political agenda and the government is moving to increase the amount of affordable provision. Recent research for the Family and Childcare Trust shows the majority of local authorities doubt whether the provision can meet these entitlements. Add to this the inexorable rise of households where both parents work and there is clear evidence that demand for childcare will continue to be strong.
There is no doubt that the nursery and day care sector is big business. Spend has been estimated at around £5 billion with over 23,000 day nurseries across the UK. This is on top of pre-school and creches, childminders and out of school childcare providers.
The sector has two leading players, GCW client, Busy Bees and Bright Horizons. Busy Bees operates 342 nurseries with Bright Horizons not far behind with 300. Other growing groups such as Monkey Puzzle and Childbase Partnerships have 40 or so each. Otherwise the market is still very fragmented and there is likely to be further consolidation in the sector.
Whilst operators have some specific requirements when looking at suitable properties, there is a huge variety of buildings that can be adapted for nursery use. Busy Bees seeks sites of 4,000 to 7,000 sq ft with outside space and car parking or development sites of around 0.5 acres. It will commit to 15-20 year leases, with either index-linked or open market rent reviews, as well as buying freeholds. Bright Horizons has similar property requirements.
These long leases, let to strong covenants are now grabbing attention from institutional investors. In a recent deal, GCW advised Stax Nurseries on the sale of a purpose-built nursery in Farnham, Surrey. The sale saw Alpha Real Capital pay £2.11 million for the 6,100 sq ft nursery reflecting a net initial yield of 5.02%.
However, despite the potential scale of the market, it is immature from a property perspective with a dearth of data and expertise. Much of the deal data is controlled by the operators and this makes the properties difficult to value and therefore finding an expert that understands the market is vital.
GCW is harnessing this data and intelligence as part of the work in its expanding Alternative Sectors team. The know-how comes from GCW’s extensive work with Busy Bees and also from its involvement with landlords on both investments and lease advice.