Following a period of relative stagnation for nursery sales in 2019, property specialist Christie & Co reports that the last year saw a ‘tsunami of interest’ from prospective buyers.
Despite the effects of the pandemic, childcare and education business transactions rose by 21 per cent between 2020 and 2021, representing a 5 per cent increase on 2019.
It was a clear case of buyer demand exceeding supply throughout 2021. With the market experiencing a decline in the overall number of businesses being offered for sale, the volume of offers increased by around 38 per cent compared to 2020, and a massive 45 per cent since 2019.
High demand pushed prices skywards. In 2021 single asset sales on average achieved 102 per cent of the asking price.
Christie’s report states that ‘Pent up buyer demand for day nursery, specialist childcare, and education businesses has fuelled competitive tension for the best quality businesses, with prices reaching new heights for prized assets’.
Courteney Donaldson, managing director, Childcare and Education at Christies believes that the market will remain buoyant this year. ‘While some prices achieved for the most sought after childcare and education businesses have been eye-watering, we do not predict any significant reduction in pricing.’
Ms Donaldson anticipates that divergence between those settings which have returned to pre-pandemic levels and those which have not will combine to fuel the market in 2022.
‘Those with difficulties may be small operators or larger ones which have “over-geared”. Businesses which have faced a lot of challenges throughout the pandemic and are emotionally drained may now feel ready to sell – creating opportunities for those in a position to acquire,’ she says.
‘Acquisitions of distressed businesses, where occupancy has fallen and a quick sale is needed can be achieved by the buyer at a discount. However, there can be lots of problems attached to these kinds of assets, and buyers cannot afford to underestimate the challenges.’
In terms of funding, the childcare and education markets are still considered ‘green sectors’ for most lenders, where availability of funding remains strong for experienced operators. While interest rates have risen slightly, there are still a range of lenders in the sector although Ms Donaldson expects that banks could be less supportive this year.
DAY NURSERIES – MARKET PREDICTIONS for 2022
- Activity will remain buoyant
- Regional operators will continue to consolidate, acquiring single settings and small groups
- Several high-profile portfolios will change hands between trade buyers and new investors
- A two-tier market will emerge
- Outstanding capital expenditure requirements will impact prices achieved for ‘tired’ assets
- Regulatory pressures arising from inspections, if not deemed to be fair, could result in owners permanently closing sites
- Real estate developers will increasingly seek land suitable for organic nursery developments
- Property investment appetite will continue to grow. Yields are predicted to sharpen as tenant diversification prospects widen and covenant strengths improve
Download the report here
Don’t miss the Nursery World webinar in partnership with Christie & Co on 10 February at 12pm:
‘Adjust. Adapt. Advance: UK Day Nursery Market Sentiment and Looking Ahead to 2022'