Childcare investment activity has rebounded strongly over the last 12 months with total volumes reaching $1.001 billion in the 12 months to March 2025, representing a 30.3 per cent year-over-year increase. The first quarter of 2025 has already seen $141.6 million in transactions with average cap rates showing compression, currently sitting at 5.0 per cent for 2025 down from 5.3 per cent last year. Transactions were spread across Melbourne, Sydney and Brisbane highlighting the broad appeal, notably within metropolitan areas.
The childcare policy announcements in the 2025 budget, including a comprehensive $5 billion commitment toward building a universal early childhood education and care system, are likely to further strengthen the investment case for childcare assets through:
Increased demand through subsidy expansion
The government's $426.6 million investment in the new "3 Day Guarantee" ensures families are eligible for at least three days of subsidised childcare weekly, replacing the previous Child Care Subsidy Activity Test. This significant policy shift is expected to benefit an additional 100,000 families in its first full financial year, substantially expanding accessibility to formal childcare.
September 2024 data from the Department of Education already shows 1,453,780 children from 1,020,820 families using subsidised care, with the government providing $3.91 billion in total subsidies (up 9.7 per cent from the previous year). The expansion of subsidies will draw more families into the formal childcare system, improving occupancy rates that directly impact operator viability and rental security.
Development stimulus and supply enhancement
The establishment of the $1 billion Building Early Education Fund represents a targeted catalyst for new centre development and expansion of existing facilities. This fund specifically aims to increase the supply of high-quality childcare places, with particular focus on underserved markets facing supply constraints amid robust population growth.
This development stimulus, combined with the $3.6 billion allocated to fund wage increases for up to 200,000 early childhood educators through the Worker Retention Payment, creates favourable conditions for operators to expand their footprint while addressing workforce challenges. For investors, this translates to a wider array of acquisition opportunities in advantageous locations in the coming years.
Yield compression and investment appeal
Budget measures that increase operational certainty for childcare providers will likely place further downward pressure on yields. As government subsidies expand and utilisation rates increase, the income security of these assets improves, making them more attractive to risk-averse investors seeking stable returns.
Private investors continue to be the dominant investor type (including first-time commercial investors), representing approximately 80 per cent of acquisitions over the past year. However, institutional interest is growing, with small REITs and investment managers becoming more active in the space, attracted by the government-backed revenue streams and long-term sector commitment.
Prudent investors should also note the possible growing focus on regulatory monitoring. The budget's emphasis on "quality early childhood education" signals potential strengthening of quality enforcement, which may influence future compliance requirements for operators and potentially impact operational costs. Quality-focused investors may find that premium properties with exemplary compliance records become increasingly differentiated in the marketplace.
The historic $5 billion investment toward building a universal early childhood education and care system in the 2025 budget reinforces the investment appeal for childcare assets. The income stability offered by government-backed revenue streams, combined with targeted supply-side investments and workforce stabilisation measures, creates a compelling case for both private players and larger, more conservative institutional investors seeking alternatives to traditional commercial property assets.
