As Australia’s specialists in childcare location research, Business Geographics work closely with some of Australia’s most trusted child care providers, along with various independent management groups, operators and developers. With over 15 years of experience and staff qualified in Geography, Economics, IT, Urban Planning, Business and Early Childhood education, we provide a range of consulting services to equip clients with the market intelligence they need to help navigate the Childcare Industry.
Our main services include Childcare Needs Assessments to assist with the due diligence process for centre development or acquisition, and our Qikmaps online research tool, which allows our clients to explore the market for opportunities and quickly and easily appraise prospective development or acquisition sites.
We also maintain a comprehensive national database of all long day care centres and proposed developments. We collect, collate and enrich all the relevant data which feeds our consulting services, including conducting regular surveys to gather up-to-date information on fees and occupancy rates at existing centres. Our database also includes as a catalogue of demographic data, population forecasts, and residential trends.
THE CHILDCARE INDUSTRY
Long Day Care has become a significant social service as it is seen as both a mechanism to support labour force participation and as an important form of early learning and education. The sector has seen dramatic growth over recent years. Currently, there are over half-a-million children attending approved long day care centres in Australia. Approximately 92% of children who attend long day care are under the age of 5.
According to the Office of Early Childhood Education & Child Care, at a national level there is sufficient childcare available and supply is largely meeting demand. However, it’s important to note that there are some significant regional variations to this with supply exceeding demand in some areas and demand not being met by existing levels of supply in others. Additionally, the supply of nursery places (for babies and toddlers under the age of two) is typically more restricted in most local markets.
The Childcare industry in Australia is still relatively fragmented, with a diverse range of operators. Operators with only a single service dominate the industry, delivering 40% of all services provided. Large Operators and Consolidators, who manage more than 25 businesses, provide another 30% of services, and the final 30% is provided by Medium-size operators with 2-25 services. Around half of all services are provided by Not-for-Profits, with Good Start representing the largest share.
SUPPLY & DEMAND
The Childcare Market in Australia is in a Growth Phase with significant investment in new childcare infrastructure occurring throughout the country. This growth is reflected in our database as summarised below.
Between 2011 and 2016, the national total of long day care places increased by around 17.7%, which is around 3.54% per annum or 67,609 places. As of March 2018, the number of Active Long Day Care Centres in Australia has reached 7,266, which supply a combined total of 483,678 Licenced places.
In comparison, the total population of Australia increased by approximately 8.8% between 2011 and 2016, with the total number of children aged under 5 increasing by just 3%. That’s around a 0.6% increase per annum, or 43,729 children. At present (2018) there are an estimated 1.5 million children under 5 in Australia demanding over 400,000 places per day.
THE DECLINING RATIO
These statistics indicate a major growth in supply and only a slight increase in demand, resulting in a decline in the ratio of children per place. While in 2011, the ratio of children per childcare place was estimated at 3.8:1 nationally, by 2016 it had dropped to 3.3:1. Since 2016, the national ratio of children per childcare place has declined even further, sitting at around 3.2:1 as of March 2018.
The Ratio varies from city to city however the trend of declining ratios is consistent and large increases in the supply of Long Day Care relative to demand growth is evident acoss all major cities. For example –
- In Brisbane, the current ratio of children per childcare place is 2.4:1. Between 2011 and 2016, the number of children under the age of 5 grew by 2.61% (4,000), while the growth in the number of Long Day Care places was around 11.9% (6,090).
- Melbourne’s ratio is currently 3.2:1, with the number of under 5’s increasing by 10.69% (25,000) and the supply long day care places growing by around 25% (16,311) between 2011 and 2016.
- In Sydney, the ratio is currently at 2.9:1. As of 2016, the number of under 5’s had increased by 4.7% (12,500) since 2011, while the number of long day care places increased by 23.3% (17,971) over the same period.
According to these statistics, it’s evident that the rate at which the supply of places is growing is exceeding the growth in the population of children under 5. This may have adverse impacts on the existing network in some areas.
It’s worth noting that growth is continuing and as of March 2018, around 105 new centres have opened across Australia this year creating around 9,200 additional new places. Business Geographics estimates another 120+ centres will open this year, adding a further 11,000+places to supply.
FACTORS DRIVING THE GROWTH IN SUPPLY
There are a range of factors contributing to the rapid rates of growth currently being experienced by the Childcare Industry. After the global financial crisis, the market was relatively undersupplied following a period of limited investment. However, since 2011, investment has flooded back into the industry. Corporate Consolidators and Private Equity Firms started actively investing in the local market acquiring, expanding and developing new centres. Private Developers and Investors have also been attracted by –
- Historically Higher Yields compared to other commercial property
- Long Term Tenancy Agreements (coupled with triple net-lease tenancy model) which provide certainty and stability for investors
- Government Support (Including the New Jobs for Families Package) to increase accessibility, boost participation and ensure resilience of consumer income in an economic downturn (particularly for lower-income families).
More recently, property developers looking for opportunities as the residential construction boom ends have been attracted by the relatively easy approval process, availability of finance and high sales prices and rents.
As the market has grown, the size of centres being built has also increased. Since 2011, the average Long Day Care centre size has increased by around 24 places, from 63 places to 87. The majority of centres constructed this year will exceed 100 places. This increase in the average centre size indicates a growing preference for a larger built form and responds to economic imperatives for the viability of centres.
There is also a strong trend toward quality with new purpose-built centres raising the benchmark in quality and style. Developers have also sought to create a point of difference by making their centres unique, cutting-edge and saleable. This has been achieved through innovative architectural design, the use of all natural and high-quality materials, imaginative play spaces, and the provision of extra services, such as educational programs.
Another notable trend is a more strategic approach to the location of centres. Operators have identified locations near schools, employment precincts and transport nodes as critical to their long-term viability. More flexible centre configurations including the conversion of commercial properties has also enabled a more diverse and distributed range of childcare services in established areas.
Whilst the growth in supply has outpaced the growth in children in Australia, there are a number of factors supporting demand and driving increased childcare participation rates. These factors include –
- Increased availability and accessibility of childcare as a result of increased supply
- Improved quality and amenity as a result of improvements to built form and services
- Increased cost of living pressures (eg. high property prices) have increased female labour force participation rates and demand for childcare
Improved Government support such as the New Jobs for Families Package has supported childcare use (particularly for low and middle income families)
- Tighter regulations around family day care have made this a less attractive alternative
- Stable macro-economic environment and employment has buttressed demand
- Strong net migration levels (208,000 people p.a.) have supported growth.
Whilst continued government support and supportive economic conditions have ensured strong industry growth, the industry is not without risks.
- The general ageing of the population and declining fertility rates have the potential to impact future growth and revenues.
- Increased costs from wage pressures, staff turnover and increased regulation also pose risks to the future profitability of the industry.
- An economic downturn and increase in unemployment rates could have a potentially devastating effect on the industry with childcare one of the first items in a families budget likely to be cut in the event of unemployment.
- The rapid growth in new supply may lead to significant oversupply in some areas with the potential for some rationalisation of poorly performing or unprofitable centres.
As the market matures and becomes more competitive, and as market share consolidation by the the larger operators continues, some rationalisation may be inevitable. In this environment, centres that fail to understand the characteristics, needs and expectations of their local markets and offer services to meet those needs will come under pressure.
RISK AVOIDANCE WITH BUSINESS GEOGRAPHICS
While these risks seem quite daunting, it’s important to take a long-term view and build a sustainable business that can withstand changes to market conditions that are beyond your control. What is in your control however, is having a thorough understanding of the market in which you operate or plan to operate. This should always begin with a due diligence process to assess the needs of an area prior to the development, acquisition, or expansion of a childcare business.
Business Geographics are specialists in compiling and presenting Industry data to ensure our clients have the advantage of accurate and timely market intelligence when considering investment opportunities in the Childcare Industry.
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