Childcare centre transaction makes history

HealthCo Health and Wellness REIT has transacted the largest-ever childcare centre in Victorian history for $20.5 million, representing a passing yield of 4.6%. 

Located at 117 Kooyong Road, Armadale, the childcare centre is tenanted by a leading Victorian operator, Explorers Early Learning. 

The property was included in a total of $45.3 million in childcare divestments by HealthCo Health and Wellness REIT for an approximate passing yield of 4.8%. 

The divestments by HealthCo form part of its asset recycling program announced at the time of acquiring the Healthscope Hospital Portfolio. 

CBRE’s Australian Healthcare and Social Infrastructure team of Sandro Peluso, Jimmy Tat and Marcello Caspani-Muto brokered the deal. 

“This is the sharpest yield witnessed for a Victorian childcare centre since 2020 when our CBRE team sold 1 Capra Court, Narre Warren at a record low of 4.25%,” Mr Peluso said. 

“With interest rates having risen 3.85% since, the Armadale transaction is a testament to the strong and unwavering investor sentiment toward the early learning sector, in combination with an appreciation for the value of existing centres in a rapidly rising construction cost environment.”

With an influx of international capital over the past six months pricing is being driven by strong buyer interest from both domestic and international high-net-worth private groups along with multiple REITs looking to increase their exposure into social infrastructure real estate.

Mr Tat added, “While domestic interest has remained strong our teams' last six months of childcare and social infrastructure-related investments has seen circa 70% of properties sold to international capital. This is not a trend we expect to slow in the short term.”

“Australia’s immigration numbers are also acting as a fundamental driver for investors. The substantial influx forecast is expected to positively influence the property market more significantly than interest rates.”

“With increasing immigration rates and forecast interest rates reductions in 2024 there will be a major uplift in demand with limited supply already choking the markets.”

Mr Peluso added, “The Armadale property and all other assets currently under negotiation are located within established suburbs of Melbourne meaning underlying land values are high. When you couple this with rising construction costs at yields between 4.5%-5% and factor in leasing risk allowances, transactions are not occurring a far stretch from replacement cost. There is a reason many large-scale investment funds have stopped development in the short term because they are acutely aware of the risk associated.”

The childcare sector in Victoria has experienced significant growth and demand in recent years, driven by changing demographics, increased workforce participation, and a focus on early childhood education. 

The consistent rise in demand, coupled with limited supply, has led to strong investment opportunities within this sector.