The figures speak for themselves. Over the past 10 years, the number of nursery places has risen more than five-fold, while the number of new nurseries has grown by 18% between 2004 and 2005.
Changing demographics, more mothers returning to the workplace, attractive government incentives such as the Neighbourhood Nursery Initiative and Sure Start, and tax benefits offered to companies via childcare vouchers, are helping to boost the market.
This growth has not escaped the attention of institutions eager to buy nurseries as investments. And while companies at the top end of the market, such as Nord Anglia, Asquith, Busy Bees and Kids Unlimited have a large presence, they only account for just over 10% of the sector. But this is changing.
With consolidation and the government grants issued to assist in the development of NNI nurseries and their early operational start-up costs now running out, the sector has faced increased pressure on occupancy and some unsustainable settings have ceased trading. However, despite the arrival of subsidised nurseries in some locations, the larger companies and some regional operators are keen to expand through acquisition.
Whether it is larger companies buying, or independents moving into the sector, there are many considerations to be taken into account before buying.
The preference for new-build or conversion is down to the individual companies buying.
For instance, Northampton-based Q Day Nuseries seeks out conversions or redevelopments.
The opposite is true for Cheshire-based Kids Unlimited, which has 50 nurseries across the country. It targets new, purpose-built buildings. Commercial director Jeremy Clark says the reason is because the company is very design-oriented. “There are very few conversions out there that would suit us. We have looked at numerous sites, but either the size or location isn’t right.”
Location is key. The large corporate companies generally require sites ranging from 0.5 acres to 0.75 acres, with prominent road-side access and good signage, while smaller businesses or independents can take more secluded sites.
Duncan Mason, director of Quadrant Estates, says that local authorities are encouraging, and almost demanding, that nurseries are provided as part of mixed-use development.
Meanwhile, competition from other operators is also a factor. “We look at like-minded corporates who take new-build. We have turned away from towns that have too many purpose-built nurseries,” says Clark.
Location hotspots can be anywhere where the demographics are right. In London, there is more demand in north London, for example in Enfield. And UK-wide, Courtenay Donaldson, director and head of Christie & Co’s child-centric division, says that places such as York, Harrogate, south Manchester, Oxford, Cambridge and within the M25 corridor are particularly sought-after by operators.
Donaldson adds that there is low demand in the North East because of the family tradition of sharing child-care responsibilities.
Similar to the new-build or conversion market, the preference for either freehold or leasehold differs with each of the groups. Donaldson says that during the past five years the sector “has become more sophisticated”.
He adds: “While many operators are committed to develop mixed portfolios, some operators have developed a leaning towards growth through acquisition.”
She adds: “During the past year, we have seen the growth and development of sale and leaseback. Operators with suitable portfolios are keen to consider sale and leaseback opportunities so that they may realise funds for reinvestment within their portfolio, which assists in their development and operational strategies.”
Increasingly, more institutions are turning their attention to the nursery sector, while larger nurseries are starting to buy smaller companies. According to Mason, investment yields wary widely depending on covenant strength: “The best yields are below 6%, but the poorer investments still yield around 7.5%.”
Proving how much activity there is in the market, in the past four months Christie & Co has advised on and sold £260m worth of nursery properties.
There will definitely be a shift in the market towards consolidation. The raft of government grants dished out in the early 2000s that lead to the growth spurt in the number of nurseries through subsidised places is now reaching maturity.
This, believes Donaldson, will lead to an increased number of closures of both private and subsidised nurseries.
More than likely, these properties will be converted back to residential dwellings, or alternative uses are likely to be sought. Many companies are wary of revealing their expansion plans, but Kids Unlimited is one that is on a drive to acquire other businesses.
“We are still looking to develop private, day nurseries, but the perception is that there are more and more towns which are over-saturated, and that there are fewer options – which is why we are also moving into acquisitions,” says Clark.
The change in strategy was initiated in the past six months, when the company bought three nurseries – these were sale and leaseback deals, owingto the strength of the investment market.
Clark says: “There are a lot of opportunities coming through now – more than there were three years ago.”
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● The UK day-care nursery market is worth £3.25bn, of which 85% is within the private sector (2004) ● There are around 1.5m child care places in the UK, of which some 630,000 are in nurseries (2005) ● There are 13,570 registered nurseries in UK (2005) ● Nurseries employ more than 200,000 members of staff ● 80% of nursery places are offered by one- or two-unit operators ● 75% of parents say that working parents cannot find enough childcare ● The number of nursery places has increased more than five-fold in past 10 years ● Investment yields vary between 6% and 7.5% ● Rents are generally £10 per sq ft – £15 per sq ft, but can rise as high as £20 per sq ft in London |
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Source: Quadrant Estates |
