New deep dive into “ECEC property market” provides unique insights into the sector’s least understood market

A comprehensive new report, commissioned by The Front Project, into the dynamics of the Early Childhood Education and Care (ECEC) sector’s property market, has revealed unique insights that help contextualise the true nature of the sector’s least transparent, and consequently understood market. 

The report, which spans 99 pages and was completed by research consultancy Dandalo Partners, is to date the most thorough examination of the ECEC sector’s property market ever produced and is the result of a review of over 20,000 property transaction records and conversations with fifty developers, landlords, fund managers, providers and regulators from across the ECEC system. 

The following is a summary of the key insights identified in the report:

• Sale prices of long day care centres have grown at more than twice the rate of residential properties since 2017, driven up by the value of high rental returns and increases in construction costs, however the latter is creating challenges for new developments with costs up by just under 50 per cent in the last nine years. 

• There are more than 12,000 centres nationally, 9,685 LDC services and 3,084 kindergarten / preschools. Centres vary considerably in terms of building type, age, size and location. 

• Long day care centres are getting bigger. The average size has increased by around 24% over the past 12 years. The share of larger services (75 places or more) increased from 23% in 2014 to 39% in 2026 and smaller services (fewer than 75 places) fell from 77% in 2014 to 61% in 2026. New services entering the market were, on average, 34 licensed places larger than those exiting (2014-2026).

• The value creation cycle of an ECEC centre includes three distinct pathways namely; a development profit accrues to the developer and is essentially the cost of building less the sales price, capital growth profit which occurs when a property is sold for a higher price than it was bought with value linked to rental rates and property yields and a rental profit which is the monthly return based on a licence places that a landlord will receive. 

• Commercial incentives are encouraging the development of larger centres and more intensive use of sites. The main driver for this is likely increasing land prices and construction costs requiring a higher sale price to justify the investment. As a result, decisions about size are being driven by economics more than by considerations about what would be best for children.

• Individual owners account for the vast majority of ECEC freeholds with this cohort owning 68% of properties. This is made up of small-scale investors and is highly diverse, including self-managed super funds, ‘mum-and-dad’ investors, and high-net-worth private investors. Corporates own just 10 per cent. 

• Developers, corporate/institutional and commercial retail/mixed use landlords will typically seek out large, established for-profit providers whereas Government and NGO-owned sites are most often leased to Not-for-profit providers or Community-based services.

• Long-term leases lock providers into fixed obligations that are difficult to exit. While this gives providers security of tenure and time to build their business, it also reduces their capacity to respond to changing circumstances.

• Emerging dynamics such as a change in liquidity preferences for older “mum and dad” owners who are understood to be material owners of ECEC property assets could lead to a higher propensity to sell in the years ahead and recent tax reforms are likely to change property related incentives that may deter future investment in the space. 

The notable conclusion from the report is that the ECEC property sector, like the business ownership space, is fragmented with non-professional investors the largest ownership cohort. In addition, the report notes that developer incentives are not always aligned with the best interests of children and their communities which in turn can lead to challenges with both over and under supply in communities. 

These two dynamics share one key factor in common, that quality and/or access both are compromised and in turn impact a communities children negatively. 

In light of that the final conclusion of the report is to highlight that there is a role for Government to support regulation in the ECEC property space but that “any decision to intervene carries risk and is likely to change how the market operates.”

“While it is crucial that the sector operates in a way that prioritises quality and outcomes for children, it is important to avoid an overcorrection that discourages private investment in the ECEC sector and results in supply constraints.”

“It is important that the Government carefully considers all options and the implications of all actions before choosing how to act. The government will need accurate data to be able to inform decision making.”

To read the ECEC Property Market Dynamics Final Report click here.