This is according to the latest episode of the Between the Lines podcast, hosted by RWC’s Head of Research, Vanessa Rader. The live webinar featured Andrew Sacco from RWC Western Sydney and Sherif Saad, Managing Architect of the award-winning firm Artmade Architects, to dissect investment trends, design evolutions, and the outlook for the sector heading into 2026 and 2027.
The new market reality: Quality over size
Following a spike in investment activity in 2025, the market has seen a "slight lull," according to Mr Sacco. While the frantic urgency in the market has dissipated due to current uncertainties, the underlying fundamentals remain strong.
Driven by population growth and government subsidies, the asset class continues to stimulate interest, though investors are cautioned to be aware of localised pockets being missed or overcapitalised.
A major takeaway from the discussion was the definitive shift away from the "mega-centre" (over 200 children) toward a sustainable facility size of 60 to 90 spots, as larger centres often struggle with occupancy and staffing.
"We went from these small centres, then to 60 to 90. Post-2010, there was kind of a fight over who could put in the bigger centre… I was personally against it," said Sherif Saad. "What I'm seeing now is the sweet spot between 60 and 90."
High-net-worth buyers driving sub-$7m market
The main buyers in the market right now are primarily price-point driven, consisting mostly of private high-net-worth individuals and syndicates rather than institutional investors. Due to changes in residential taxation, more investors are shifting toward commercial assets like childcare.
"Childcare is more secure," noted Andrew Sacco. "There is so much going for this asset class at the moment.”
Mr Sacco explained that current buying patterns point directly to local capital: “Anything below the $6 million to $7 million mark (is moving). When we start looking at $10 million, $11 million, or $12 million, it's a lot of money to go into just one asset."
Yields remain relatively tight, with metropolitan assets often seeing returns in the high fours to mid-fives, while regional assets generally command higher yields due to increased risk.
Smart design defeats high construction costs
With construction costs and inflation remaining key challenges, architects emphasise the importance of "Type C" construction - a simpler, more cost effective building approach that avoids unnecessary complexities like basements. Modern childcare design focuses heavily on efficiency, natural light, and ventilation to improve the business from the inside out.
"In terms of design, we quite often go back to the basic form, with natural light and ventilation," Mr Saad said. "We always put the hard work in at the very beginning to make sure we get the design right.”
“What really drives the business is the staff, so you have to make them comfortable… It's like a domino effect."
Vanessa Rader agreed, noting that adequate staff amenities are vital for staff retention and stable occupancy, adding, "You don't want to send your child to a childcare centre where there is a different person working every week."
Outlook for 26/27: A resilient future
While private investors historically ignored sustainability, there is a growing appreciation for ESG and energy efficient design principles as the market matures. The panel agreed that the current market slowdown is a healthy correction compared to the frantic rush of previous years.
"In the last five to seven years there was a rush, and too many people got hurt. People are starting to slow down a bit, which is great," reflected Mr Saad.
Looking forward to 2027, the outlook for the childcare sector remains robust.
"I'm still quite positive in the market," concluded Mr Sacco. "Childcare as a whole is still going to be a resilient asset class; the supply and demand is still good. We are going to see a lot of transactions in the childcare sector."
