Specialist Focus: 2026 Childcare Property Market Overview

Doug Shorten | Head of Department, Social Infrastructure

Sector Overview

Childcare services are ingrained within the social fabric of Australia, and, despite some recent challenges and an anticipated period of consolidation, the long-term fundamentals of the sector remain sound.

Demand for childcare services has been shaped in recent years by increased female labour force participation, the growing prevalence of dual-income households, population growth among children under five years of age, and sustained Federal Government funding support.

Despite this period of strong growth, a theme of increasing challenges has arisen in late 2025 and into 2026, including oversupply issues in some catchments resulting in lower occupancy, staffing shortages, affordability pressures, and a series of high-profile child safety failures.

While conditions vary among the states, there is growing evidence that risk is being reassessed across the sector, particularly as cost pressures persist and supply has increased significantly nationwide. Revenue growth has been supported by fee increases in some instances; however, margin compression is becoming more evident across the sector.

Federal Government reforms, most notably the Cheaper Child Care policy and the introduction of the Three Day Guarantee from 5 January 2026, have supported increased demand and access. Industry income reached approximately $23.6 billion in 2025 and is forecast to grow at an annualised rate of approximately 3.5% over the next five years. This follows an annualised growth rate of 6.7% over the preceding five-year period; the moderation in the forward forecast reflects a maturing sector and an anticipated period of consolidation.

A key source of uncertainty for operators in 2026 has been the impending expiry of the Worker Retention Payment, which was due to expire in November 2026, with no commitment to extend it made in the most recent Federal Budget at that time. This was further compounded by the 4.75% increase to award wages announced in June 2026, applying additional wage pressure on operators already managing tight margins.

The Worker Retention Payment required operators to cap annual daily fee increases over the two-year funding period. Given the significant margin pressure across the sector, some operators were anticipating a requirement to implement substantial fee increases following the arrangement’s expiry. However, on 17 June 2026 the Australian Federal Government extended the Worker Retention Payment until 30 June 2028 at a committed cost of $3.6 billion – a further significant funding commitment to the sector. As a condition of the extension, eligible services must not increase their fees by more than 5.8% between 8 August 2026 and 7 August 2027.

Overall, while many pockets of the national childcare market continue to benefit from favourable demographic tailwinds, the sector is no longer insulated from the operational and inflationary financial pressures affecting the broader national and global economy.

Strong, experienced operators that prioritise safety, compliance, and the retention of a high-quality workforce are well placed to capitalise on emerging opportunities and to weather near-term market challenges – potentially at the expense of secondary or less experienced operators.

Regulations

New national regulations were introduced through the Early Childhood Education and Care (Strengthening Regulation of Early Education) Act 2025, aimed at addressing recent safety concerns through tougher licensing requirements, real-time incident reporting, and stricter compliance standards. The National Early Childhood Worker Register went live in early 2026, with providers required to collect and register staff information, including Working with Children Check details. These measures are broadly viewed as a positive development for the sector’s long-term sustainability and for the confidence of families using childcare services.

Increasing regulatory requirements around staffing ratios, compliance, and quality standards are, however, contributing to a structurally higher cost base for operators.

Investor Market

The Australian childcare property sector continues to demonstrate resilience as a recognised social infrastructure asset class, underpinned by strong structural demand and sustained government support. Investor interest remains grounded in the essential nature of early childhood education and its critical role in supporting workforce participation and long-term economic productivity.

Expenditure on the Child Care Subsidy (CCS) was predicted to exceed $16 billion in 2025–26, reinforcing the policy foundation underpinning the sector’s revenue base. The broader investment landscape is nevertheless evolving, with macroeconomic conditions influencing both sentiment and development activity. The pace of new supply is expected to slow, with developers and operators adopting a more disciplined approach to site selection and project feasibility. Over the medium to long term, this supply-side moderation is anticipated to support sector sustainability.

Enduring Investment Fundamentals

Key factors continuing to attract capital to the childcare sector include:

• Strong Government Support: Significant and ongoing Federal Government funding provides a stable demand base and reinforces the sector’s long-term viability.

• Secure Income Profiles: Long lease structures, typically ranging from 10 to 15 years with fixed annual rental increases, underpin predictable income streams.

• Relative Yield Advantage: Childcare assets continue to offer favourable yield performance compared to traditional commercial property sectors.

• Defensive Asset Characteristics: Recognised as essential social infrastructure, childcare assets are viewed as resilient through market cycles and integral to Australia’s social fabric.

Prevailing Risks and Headwinds 

Notwithstanding these strengths, a number of emerging risks and headwinds are shaping the current market environment:

• Operational Pressure on Providers: Rising costs are elevating income risk for landlords where operator margins are under sustained pressure.

• Covenant Sensitivity: Investors are placing greater emphasis on tenant quality, financial resilience, and operator track record as part of acquisition due diligence.

• Catchment-Specific Performance: Supply and demand dynamics remain highly localised, with some markets experiencing increased competition and softer occupancy outcomes.

• Re-leasing and Incentivisation Risk: In more competitive environments, landlords may need to adjust rental settings or undertake capital expenditure to attract or retain operators.

• Limited Alternative Use: Purpose-built childcare centres often have restricted alternative use potential, impacting flexibility and underlying land value in a downside scenario.

• Reduced Market Depth at Scale: Buyer demand for higher-value assets (typically above $7 million) has softened, reflecting the prevailing macroeconomic investment environment.

   

Opportunities

• Unlocking rental upside through market rent reviews under legacy leases.

• Acquisition opportunities arising from reduced participation by major operators and developers.

• Greater owner-occupier activity across both existing and newly developed childcare assets.

Outlook

Looking ahead, the childcare property market is expected to remain active, albeit with a more measured and selective tone. The sector’s long-term fundamentals remain compelling, supported by forecast population growth and sustained Federal Government commitment to workforce participation and productivity.

Asset quality, operator strength – assessed on both reputational and financial grounds – and catchment fundamentals are expected to be the primary determinants of value and risk through the next cycle.

Doug Shorten
Head of Department - Social Infrastructure
doug.shorten@opteonsolutions.com
0418 991 077

References

1. Australian Government Department of Education. (2026). 3 Day Guarantee. Retrieved from https://www.education.gov.au/early-childhood/providers/child-care-subsidy/3-day-guarantee

2. IBISWorld. (2025). Child Care Services in Australia (ANZSIC Q8710). Industry market size, revenue and forecast data. Retrieved from https://www.ibisworld.com/australia/market-size/child-care-services/626/

3. Australian Government Department of Education. (2026, 17 June). Worker retention payment extended to 30 June 2028. Retrieved from https://www.education.gov.au/early-childhood/announcements/worker-retention-payment-extended-30-june-2028

4. Commonwealth of Australia. (2025). Early Childhood Education and Care (Strengthening Regulation of Early Education) Act 2025.

5. Australian Government Department of Education. (2025). 2025–26 Budget – Early childhood education and care. Retrieved from https://www.education.gov.au/early-childhood/about/data-and-reports/quarterly-reports/child-care-subsidy-data-report-june-quarter-2025

6. Fair Work Ombudsman. (2026). Annual Wage Review 2026 – Minimum wages increase from 1 July 2026. Retrieved from https://www.fairwork.gov.au/about-us/workplace-laws/annual-wage-review/annual-wage-review-2026

7. Australian Government Department of Education. (2026, 17 June). Worker retention payment extended to 30 June 2028. Retrieved from https://www.education.gov.au/early-childhood/announcements/worker-retention-payment-extended-30-june-2028

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