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The UK is set to see a rise in the number of investors from China buying nurseries this year, according to a leading property broker.
Brexit which led to a drop in the pound, as well as the perceived high standards of education in Britain, have contributed to making nurseries in the UK particularly attractive in terms of investment, according to Christie & Co’s head of Childcare & Education, Courteney Donaldson, who said: “We have seen a big interest in the nursery sector from overseas. The development and commitment of the nursery market makes it an attractive business model.
British nurseries are 'attractive proposition'
“The drop in value of the British currency due to Brexit means overseas investors can get more for their money. In addition there is also still a perception in other countries that the UK has high standards of education which is another reason why British nurseries are seen as an attractive proposition.”
Christie & Co’s Business Outlook for 2017 forecasts that despite last year being full of political turmoil which is very likely to have an economic impact in the future, the childcare market will remain buoyant, with ‘buyer demand for educational and specialist childcare businesses continuing to outstrip supply’.
Although overseas investors are coming from India, Pakistan and Europe, there is a “phenomenal” amount of interest from the emerging economic superpower, China.
Ms Donaldson believes there are “so many Chinese investors interested in buying nurseries in the UK because they value education so highly”.
She said: “They are also interested in partnering with British nurseries on a joint venture. They invest so highly in their children’s education. Many of them are looking to build nurseries in China but they want to partner with high calibre operators that will run the nursery in China with Chinese practitioners, using the EYFS (Early Years Foundation Stage).”
However it is not just outside the UK, that the childcare market is increasingly being seen as a good investment.
2016: High levels of activity
Last year, saw high levels of activity within the UK, topped off by Bright Horizons buying Asquith Day Nurseries.
Factors such as a demand for high-quality childcare because of more women returning to the workplace after having children, have led to the childcare sector being “positive for both investors and operators alike”
The backing of the Government in England in terms of free childcare hours for three and four-year-olds, which are due to double this year from 15 to 30, has also had a significant impact and is recognition of the importance of the early years in shaping a person’s long-term future. Scotland and Wales are following a similar trajectory in funding nurseries to offer more childcare.
However she does add the caveat that it is a positive investment “on the proviso that costs of delivery are adequately met”, as there has been a huge amount of concern from nursery providers as to how they are going to offer the 30 hours free childcare, when they are already struggling to offer 15 hours on what they say are inadequate rates.
South-East in demand
The regions continuing to experience demand are nurseries in the South, South East, and London, and when high quality nurseries which are doing well financially come to the market, deals are often agreed within days.
“High-calibre businesses, which can demonstrate established and high yielding earnings, will remain much sought after and continue to command premium prices,” said Ms Donaldson.
She predicts this strong activity will continue this year both in terms of buying and selling from both the large childcare operators and the smaller ones.
Last year saw more regional operators wanting to expand and Ms Donaldson thinks this will continue.
There has also been an emergence of first time buyers back into the market and this will carry on into 2017.
The reliability of the sector as an investment opportunity is reflected in the banks’ willingness to lend money to aid any expansion and acquisition plans.
Many high street banks have recently rewritten and improved their credit lending policies towards the childcare sector, reveals Christie & Co’s report.
In terms of Brexit, the childcare market has not seen any negative impact so far, according to Christie & Co.
Ms Donaldson points to Bright Horizons buying Little Unicorns Day Nurseries Group in Canary Wharf in London last August, as indication that investors were undeterred by the vote for the UK to withdraw from the European Union.
With the average price of a day nursery rising by 9.7 per cent in 2016, it is no surprise that Christie & Co’s chairman, David Rugg, concluded “that although some uncertainty was felt after the initial referendum outcome, the likelihood is there will be no lasting impact.
However he added: “There will of course be an economic impact. The availability of funding is a driving force within the business cycle; with base rates, reduced margins have tightened, and with borrowing becoming ever-cheaper, we are likely to see more borrowers attracted. however, the challenge remains finding good businesses to buy.”
Christie & Co's Business Outlook 2017 can be viewed at https://www.christie.com/christieMediaLibraries/christie/PDFs-Publications/Christie-Co-Business-Outlook-2017.pdf?ext=.pdf