Establish MD discusses the NZ ECEC market from a development perspective
Paul Rodgers established a New Zealand business four years ago, designed to work with clients to create the “best early learning centres in New Zealand”. In partnership with CEO Logan Whitelaw, the aim of the business was to help new services navigate the complexity of getting an early childhood education and care (ECEC) centre up and running.
Given their goal of creating a team which would “remove all the complexities and get ECEC developments off to the best possible start” it seems only fitting that they would name their venture Establish.
Paul met recently with The Sector to discuss trends and developments in the New Zealand ECEC landscape, as they relate to business development.
Interviewee:Paul Rodgers, Managing Director, Establish
Topic: business development, international trends, opportunities and pipelines
Freya: Thanks for speaking with The Sector Paul, can I start by asking what you see as the trends in new centre development or renovation in New Zealand?
Paul: The 2019 calendar year has been like no other experienced since starting Establish four years ago.
We have seen a reduction in town planning and council permission applications for new centres across New Zealand, and general caution from most parties operating within the property and development space.
The reasons for this vary, but a couple of the key drivers include: the release and consultation on the Draft Strategic Plan for Early Learning (discussed further below); the current Government having exited its honeymoon phase; staff shortages and staff retention; speculative developers having left the market; a lack of accurate information around supply and demand; and, the overall costs associated with development (land, consenting, compliance and construction).
That being said, we have seen more operators optimising their existing businesses through altering the conditions of their consent. By this I mean increasing licenced places and/or changing opening hours to meet the needs of modern families, to physically expanding the centre and play areas. Optimisation is seen as a quick, low-risk win that allows for flexibility and growth moving forward. It is also seen as a valuable exercise to those who are looking to sell their business.
Another trend of note is the sale of smaller centres – 30-40 place centres sitting on 800 sq m of land – to residential developers. Much of the time these centres are located in prime locations where the underlying land value has skyrocketed since the centre was established. With significant maintenance and/or modernisation required to keep the centre competitive, closing the business and selling the property can be seen as a worthy option.
Freya: Great, thanks Paul. For those unfamiliar with the NZ context, are there any developments in the past 12 months that are impacting on the ECEC space?
Paul: The Draft Strategic Plan for Early Learning, which closed for consultation on 15 March 2019, was the first big review of the vision and direction for early childhood education (ECE) in New Zealand since 2002 (when the Ministry of Education launched Pathways to the Future, outlining a vision for the future of ECE). This Strategic Plan is a proposed set of objectives, strategies and tactics aimed at raising the quality of ECE in New Zealand across the board over the next 10 years.
The Plan was broadly separated into five goals aiming to set out the policy intentions for the next 10 years. The goals are briefly summarised below.
Goal 1: Quality is raised for children by improving regulated standards
Broadly speaking this goal seeks to provide more teachers, smaller group sizes, changes to indoor and outdoor space standards, higher teacher-to-child ratios, closer monitoring of centres, and low-quality operators being banned from opening new centres.
Goal 2: Every child is empowered through timely access to the resources they need to thrive
This goal seeks equitable funding (ensuring funding gets to where the needs are the highest), the development of a formative learning assessment tool, and providing more centres with wrap-around social services.
Goal 3: Investment in our workforce supports excellence in teaching and learning in all services
The intention of Goal 3 is to ensure that teachers are on a salary scale model so conditions and pay are the same, student placements are required in quality ECE services, professional development opportunities are increased for teachers, and more teachers are found.
Goal 4: Planning ensures that provision is valued, sufficient and diverse
Goal 4 aims to introduce regulation in terms of where new centres are allowed to establish, increase management support for community-owned centres, build new centres on school land, provide a new funding model for te kohanga reo and playcentre, and set up state-owned ECE centres.
Goal 5: The early learning system continues to innovate, learn and improve
This goal centres on contracting out the creation of innovation and research hubs, encouraging collaboration between services, and creating a service self-assessment tool.
Overall, there are some great aspirational vision statements and underlying principles in the Plan that seek to improve the provision of ECE services across the board.
The key to the Plan’s success is going to be turning aspirational statements into policy, regulations and strategies that deliver the results but avoid adverse unattended consequences. Concerns have been raised that the Plan seems to put a lot of emphasis on further regulation, and tends to favour community-owned services.
The danger of further regulation is the unintended market consequences that deliver the opposite of the desired outcome. For example, regulating where centres can establish may decrease the need for services to constantly improve – as they are artificially shielded from healthy competition through a protectionist policy.
Since the consultation period closed, there hasn’t been much publicised progress with regards to the feedback received and implementation.
Freya: Terrific, thanks Paul. Are there any risks, in terms of property acquisition and development, which the New Zealand market is across and that would be of interest to our readers?
Paul: Supply and demand with regards to acquisition and/or new development is an area of risk that our clients have identified (along with lenders), and is an area in which we have refined our research and reporting through the 2019 year.
Knowledge is power and what we have found is that a little bit of information can be dangerous if considered in isolation.
When exploring opportunities, it is increasingly important to identify and understand existing ECE centres in the immediate area, and the occupancy levels of these centres; the quality and age of the stock (simply looking at the number of centres in an area is not sufficient); details of potential new ECE developments in the area through a review of lodged resource and building consents (future competition); to have a thorough understanding of the service offering and the most-appropriate sized centre for the market being entered; and, an understanding of the development/start-up costs if building a new centre.
Freya: And finally, how does the opportunity landscape in New Zealand look at the moment? What’s on the horizon?
Paul: Opportunities exist for those who do their homework and following on from the above, opportunities exist for those who understand spatial planning.
Simply put: ensuring areas are served with an appropriate number of spaces, relative to infrastructure, demographics and anticipated growth. When is an area oversupplied? Where is the demand now? Where is the demand going to be in two or three years’ time so that supply is ready, given the lead time required for site finding, consenting, construction, fit-out and licensing?
Advanced considerations include the projected growth in an area. Is future population growth planned or is the population expected to remain relatively static relative to other areas? Do existing centres have full rolls or do they have the capacity to accommodate any future growth? What types of services are offered in an area? There might be several centres in an area but none offering your particular teaching philosophy (e.g. Montessori or Rudolph Steiner) or for children aged under two years.
The real estate agent adage of location, location, location is no different when it comes to ECE centres. Proximity of centres relative to primary schools is supported by the NZ Ministry of Education and has been part of Ministry initiatives in the past.
Proximity to other social services, marae and Pasifika groups is also viewed positively. Easy access to transport routes and places of work are obvious benefits.
Careful consideration of geospatial factors in the provision of ECE services can ensure centres achieve full capacity, ensure demand is suitably catered for in an area, avoid investment in the wrong location, and overall can to lift participation rates.
With some applied thought at least centres will “pop up” in the right places.
Freya: Great, thanks for your time Paul.
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