Shore childcare a relative rarity

5:00 AM Saturday September 17, 2016 True Commercial

The childcare centre in Eban Avenue, Hillcrest, is easily accessed from nearby State Highway 1.

A new childcare centre in Hillcrest is being described by brokers as an investment opportunity due to its sought-after location and modern facilities.

The property, at 51 Eban Avenue, is being marketed by Colliers International brokers Shoneet Chand and Peter Kermode. The centre, with a 270sq m floor area on a 900sq m freehold site, will be for sale by auction on October 5, unless sold earlier by negotiation.

“This single level-childcare centre has been purpose-built by established developers in the childcare sector and offers a high standard of construction with modern amenities, including multi-zone heating and cooling, intercom system, and a built-in multi zone sound system,” says Chand.

“The property sits opposite Willow Park Primary School, which has a Decile 9 rating reflecting the high level of discretionary income of the surrounding demographic. The property is also positioned in a well-established area with high residential values which serve as a barrier to entry for other operators seeking to enter the market,” he says.

It is next to a block of neighbourhood retail shops where abundant street parking is provided.

“The property, which is built to accommodate 58 children, has a waterway running next to it which would be quite entertaining for children. The site offers generous fully fenced outdoor play areas and sufficient on-site car parking,” says Kermode.

This property is being offered with a 12-year-lease term from October 1 this year, returning $165,880 net per annum plus GST.

There are also three further 10-year rights of renewal in addition to the initial 12-year term. Brokers say the appealing factor for investors is the fixed rental growth of 2 per cent per annum built in to the lease plus market reviews every six years.

Chand says childcare centres — which manage to get a foothold in desirable areas with dense surrounding development — have a competitive advantage by capturing a particularly hard-to-break market.

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Offering generous fully fenced outdoor play areas, the centre is built to accommodate 58 children.

“Opportunities to build new centres are increasingly difficult with the soaring values of residential land and higher density developments. Due to this factor, such centres become even more valuable,” he points out.

“Childcare centres are typically a single-tenant investment where the tenant manages all internal and external property related issues, making them sought after hands-free investments.

“Once a centre is developed and sold, it will tend to remain in the same ownership for extended periods.”

Kermode adds his view: “When people experience the benefits of owning a centre, they tend to lock them away in their bottom drawer. That’s why the number of centres that do come to the market is very small. Out of all commercial property investment classes, there is little that competes.”

Childcare businesses are generally accompanied by a high level of goodwill tied to the physical property, therefore they very seldom move.

“In other words, a large part of the value of the business is associated with the property and the resource consent for childcare use. This is why childcare leases tend to be very long-term,” says Kermode.

“Much like housing, there is a low rate of building obsolescence in childcare facilities, so businesses often draw the benefits of the full economic and physical life of their buildings,” says Chand.

“Childcare is viewed as an essential service across the political spectrum, therefore the funding lines it provides prove to be a reliable and secure option for parents,” Kermode adds.

The property has easy access to ample parking and is only 1.75km to State Highway 1 interchange at Northcote. It is a neighbouring suburb to Northcote, well known for housing an affluent surrounding demographic.

“It’s only 400m to Ocean View Rd, 600m to Stancich Reserve and 1.25km to Onewa Reserve,” says Kermode.

“Under the Unitary Plan, the zoning for large areas within Hillcrest and Northcote will change from Residential 4A to Mixed Housing Suburban, which means there is a high likelihood of more intensive developments and notable population growth in the area,” says Chand.