New subsidy could lift childcare investment
Investor’s chances of profiting from Australia’s embattled childcare industry will be boosted by new government subsidies, experts forecast.
As of January 5 this year, the federal government introduced the “three-day guarantee”, which provides every family with 72 hours of subsidised childcare per fortnight.
If take-up of the new subsidy, which replaces the Child Care Subsidy activity test, is successful, it could drive up demand for childcare places by as much as 24,000 per year, CBRE research has found.
The CBRE Child Care Centres report shows that annual growth in demand for childcare places is approximately 11,000, but if the subsidy lifts enrolments by 0.6 per cent, that number would increase by 13,000 placements per annum.
“The 3-Day Guarantee is expected to boost demand and occupancy rates, particularly for families who faced barriers due to the previous activity test requirement,” the report states.
Australia’s childcare centre market is worth $60 billion and comprises 9,750 long day care centres. Most are in NSW (3707), followed by Victoria (2157), Queensland (1959), Western Australia (939) and South Australia (538).
Yields range between 4 per cent and 6 per cent, with fluctuations dependent on location, lease covenants and alternative-use prospects.
“We assess yields have tightened by 9 basis points over the past 12 months,” the report states.
“We attribute the tightening to renewed investor confidence and competitive pricing across the sector. Metropolitan areas, especially in NSW and Queensland, exhibit lower cap rates, with some transactions in 2025 recording rates as low as 3.31 per cent.
“In contrast, commuter metro and regional areas typically command higher cap rates, often exceeding 6 per cent, reflecting differing risk profiles.”
Other factors in favour of investors include CPI-linked escalation, partial government-sourced revenue, and long weighted average lease expiry (WALE), typically between 15 and 20 years, with options.
On the other hand, investors need to consider the downsides of the current childcare market.
Fertility rates dipped from 1.49 babies per woman in 2023 to 1.48 in 2024, Australian Bureau of Statistics data reveals.
Australia’s childcare industry is also dealing with the widespread fallout of child sexual abuse allegations revealed last year. Accused paedophile Joshua Dale Brown faces more than 150 charges relating to babies and toddlers across childcare centres in Victoria.
It, along with a Four Corners investigation into safety at childcare centres, put for-profit providers under intense scrutiny over their staffing controls and adherence to regulations.
As a result, many parents have withdrawn their children. One of the nation’s biggest for-profit operators, G8 Education, recorded a sharp drop in occupancy across its 400 centres – at 54.4 per cent by mid-February this year, slipping by 7.5 per cent at the same time in 2025.
It contributed to the company’s net loss of $303.3 million in the 12 months to December 31.
The childcare sector trades assets worth an estimated $450 million per annum, with CBRE data showing this is largely through single sales rather than portfolio deals. Last year was particularly busy, with approximately $850 million in investment volume.
Current sales include a new early learning centre in North Perth – a 760-square-metre site licensed for 76 children – and Great Beginnings Childcare in Kelso, NSW, leased by G8 Education, with a reported net income of $693,147 per annum.
In January, Only About Children – a childcare centre at 143-145 Pentecost Ave, Turramurra in Sydney’s upper north shore, sold for $11.5 million. The centre was reportedly returning $522,060 per annum plus GST.
