Many who had paused merger and acquisition plans in the wake of the pandemic resumed activity in 2021 and brought with them a real appetite for high-quality nursery businesses. Such stock is coming under offer very quickly and we’re seeing record timings for deals from instruction to completion.
Pricing for nursery businesses in the South is holding up well; this is helped by businesses going under offer based off pre-Covid figures, rather than performance over the pandemic period, and the hugely competitive buyer appetite at present. Nursery businesses are consistently selling for or above the asking price.
A brilliant example of this is with the recent sale of Grace’s Day Nursery in South East London. The well-refurbished, high-quality, 73-place nursery received eight offers and completed in just eight weeks. Thanks to competitive tension driving up the price, the setting sold to Family First, a growing group of nurseries across the South and the Midlands, for well in excess of the asking price.
Such strong buyer demand requires a healthy supply, yet there continues to be a significant lack of nursery stock on the market. This stock deficit is driving some buyers to evaluate their options and maximise on how buoyant the market is by considering an exit strategy earlier than they initially anticipated and some buyers are benefitting from the Use Classes Order changes which came into effect in September 2020, meaning there are more opportunities for buyers to acquire an alternative property suitable for a nursery business.
Over the last couple of years, we’ve seen an uptick in the number of leasehold businesses brought to market. So far in 2021, we’re seeing an equal number of freeholds coming to the market, these are especially popular with first-time buyers looking for the added security that comes with owning the property. These freehold instructions bring a wider breadth of opportunities to the market, giving the new owner more options for their own exit strategy when it comes to their turn to sell; they can retain the freehold and create a lease or sell in its entirety.
Appetite for city-based nurseries and those in the prime commuter belt remains popular. But increasingly, and flexible working is sure to have played a part, parents are choosing to enrol their children in nurseries closer to home rather than closer to the office, so settings in more rural areas are benefitting from a rise in occupancy levels. Anecdotal evidence suggests that nurseries are also seeing parents enrol children a little older than before to save money and, thanks to increased working from home, this is now a more feasible approach to childcare for many.
As the number of new build housing developments increases around the UK, it’s not uncommon for these to include purpose-built nursery settings which can be very convenient for working parents – be that at home or from the office - and I expect to see more of these opportunities brought to market in the coming years.
Staffing and occupancy challenges remain throughout the sector and, as time goes on, I expect we will see a further polarisation between those doing well and those struggling with these ongoing issues.