Investment Opportunity in the Child Care Sector
The child care sector is growing rapidly due to a shift in economy and employment, making the industry a key market for investment asset opportunities. The need for on-demand child care is driven by rising incomes, more dual-career couples, population growth among children under age 5, and more mothers in the workforce. When the market bounced back from the COVID-19 pandemic, attendance at child care facilities saw massive growth. Asset classes within the market became an attractive option due to their long-term leases, strong fixed rental increases, tenants with valuable reputations, and owners who are genuinely passionate about their businesses.
Child Care Services Market Performance
The US child care sector includes both government-sponsored and private child care services with subsidies and direct benefit transfers by governments to child care providers. The market consists of 54,000 commercial facilities with combined annual revenue of $271 billion and is expected to grow by $295.99 billion in 2022 at a compound annual growth rate (CAGR) of nine percent. Child care assets can also offer yields of 5.5 to six percent, with strong fixed rental increases typically rising by between 2.5 to three percent, providing an inflation hedge.
Top Performing Tenants
Child care centers became an essential classification amid COVID-19, helping asset classes become less of a financial risk for prospective investors. Due to this, cap rates on national child care tenants including Bright Horizons, The Learning Care Group, KinderCare, The Goddard School, Little Sunshine’s Playhouse & Preschool, and Kiddie Academy, have come closer to other NNN asset types, such as dollar stores, pharmacies, and fast-food restaurants. While these NNN properties are in high demand, child care investments aren’t as well-known and make them an ideal choice, especially if you’re under the time constraints of a 1031 exchange.
Other major companies in the child day care services market also include Family Solutions, Goodstart Early Learning, Primrose Schools, G8 Education, JP Holdings, KU Children’s Services, and PLASP Child Care Services.
