Data analytics shows that the majority of new Long Day Care (LDC) supply in NSW and VIC are in areas of high demand. This is coupled with small pockets of oversupply in QLD that is affecting occupancy and pricing. Some of the majors have reacted by increases in rates, a sharp focus on costs and increased use of technology and capital.
Current estimates suggest licensed places will increase by c.5% in 2017. The increase should not come as a surprise given the recent changes in the government funding that was initially tabled in 2015. The government expects that the reforms will benefit 1 million families and encourage 230,000 families to return to the workforce. The new scheme is expected to begin in July 2018.
The majority of the new centres continue to open in NSW and VIC accounting for c.65%. What is different this time is that VIC accounts for a larger share of the 65% than in recent times as VIC is still considered to be undersupplied. A pleasing trend is that data appears to be driving the decision to open new centres and that there is evidence that needs-based assessment is being undertaken by the developers.
The demand for childcare continues to increase with a childhood population growth rate of 1.4% and an increase of 2.7% in children using daycare in Australia in 2016. This suggests that a large amount of the feared overcapacity expected in 2018 should be absorbed in the medium term.
The larger groups continue to invest in capital and technology in a bid to increase margins and most continue to follow their dual track growth strategy consisting of:
- Organic growth – growing occupancy through centre refresh programs and developing social media programs; and
- Acquisition growth – acquisitions continue by the majors although there is a higher level of valuation discipline in their approach. This follows significant consolidation in the sector with the latest high profile overseas acquisition being Sparrow Early Learning.
The largest consumer of childcare nationally by state: in NSW (34%), Queensland (24%) and Vic (23%). Demand for childcare is increasing in VIC in line with NSW but declined in QLD.
If you are considering expanding your operations please reach out to Tamara Brown (02) 8266 5347 or Amar Jassal 0434 358 841 of the PwC Private Clients team for further advice.
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