Day care nurseries offer care for children aged from birth until five years on either a full-time or part-time basis. According to the Department of Education in spring 2018 there were an estimated 80,000 providers offering a total of 2.8 million Ofsted registered childcare places between them. But what does this market look like and what are the real estate opportunities?

The UK’s current historically low levels of unemployment and an increase in the number of single parent families has helped contribute to a greater demand for childcare in the country. As such the sector has adapted and changed its provision accordingly.

The increase in the National Living Wage and pension auto-enrolment are beneficial to those working in the sector but have increased the operating costs of early years businesses. Government contributions have been fixed and are not rising in line with increased costs. This is placing further pressure on margins, especially in areas where salaries are lower.

In some senses the market is divided. Nurseries in affluent areas where higher prices can be charged are performing well, whereas in areas where salaries are lower or reliance is on government, there are threats of further closures.

Facilities are run by a range of operators including private individuals, community groups, commercial businesses or by companies for their employees. In England, less than half the expenditure of pre-primary care is government funded. The country has one of the highest private child day care industries of all those in the Organisation for Economic Co-operation and Development.

Around 80 per cent of UK day nurseries are independently operated but there are a number of chains with multiple locations around the country. The market is slowly becoming more consolidated with the bigger brands selectively buying businesses that fit their business models as they become available.

Due to market composition, the average size of a nursery is currently small. Larger purpose-built facilities are being developed, with new build settings catering for a larger number of spaces.

With significant changes being implemented to early education and childcare, it is important that those delivering childcare provision understand the financial, political and societal changes that are expected to occur.

Good quality, profitable assets receive significant interest with many being bought off market. As portfolios increase in size, they are likely to be of interest to private equity and other commercial investors. Location is important with those centres close to a wealthy large population catchment receiving the most demand and able to achieve better profit margins.

Further information

Read more: Aspects of Trade