A childcare property in Sydney’s west sold under the hammer for $1.71 million – doubling its value in nine years.
The sale comes as childcare centres hit new heights of popularity among investors, becoming the fastest growing real estate asset with sales in the past financial year totalling $318 million, according to Burgess Rawson’s Childcare Property Investment Report.
The 696-square-metre property at 97 Richmond Street, Merrylands, last sold for $825,000 in 2008, Domain Group data showed.
It was the first asset of 21 up for grabs at Burgess Rawson’s Sydney portfolio auction, which recorded a clearance rate of 62 per cent on the day.
More than five bidders contested for the property, which sold on a yield of 4.48 per cent.
The five-minute auction opened at $1 million.
The property, which had been operating as a childcare centre for more than 20 years, attracted more than 100 enquiries and 36 contract requests during the campaign.
With a net rental income of $76,545, the lease agreement has fixed 2.5 per cent annual rental increases, with rental to hit $90,988 a year in 2024. It has a lease with Trendi Tots Kindergarten until 2025 with options until 2040.
Listing agent Rhys Parker, from Burgess Rawson, remained tight-lipped on the buyer but said they were investors who specifically wanted a childcare asset.
“There’s a particular appetite for well-leased properties in western Sydney and for childcare investment and those two factors combined and led to a strong result for that property,” he said.
The popularity of childcare properties is largely thanks to strong government funding, which is forecast to reach $10 billion by 2020, according to the Burgess Rawson report.
“The government is acutely aware that making childcare more affordable makes it more worthwhile to work, by adding 90,000 productive parents to the workforce, that will grow the economy by $3.1 billion,” the report wrote.
Properties that had a strong lease history were rare in western Sydney, Mr Parker said.
“They don’t come on to the market very often and particularly at this price point, there’s always strong demand and there’s limited supply of those.”
The vendors, who are local residents, had decided to sell now to take advantage of the current market for childcare investments, he said.
Other asset types which are popular, according to Mr Parker, include medical and retail properties in western Sydney.
A Guzman Y Gomez in Coffs Harbour, on the north coast of NSW, was the second property to sell under the hammer on Tuesday for $3.11 million on a yield of 4.5 per cent, while a line of six shops in Coffs Harbour fetched $2.45 million on a 6.82-per-cent yield.
Eight of the properties in the portfolio auction are under negotiation.
A Burgess Rawson spokesperson noted that all four childcare properties in the portfolio auction have sold.
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