The childcare sector could be one of the main beneficiaries of a post-election upturn in the market, according to Ray White.

The agency's Between the Lines report reveals how the centres were once one of the hottest alternative investment assets before banking regulation resulted in reduced demand and increased days on market.

According to Ray White, the limited competition resulted in assets without strong occupancy or in sub-prime locations attracting higher yields; although quality establishments continued to achieve sub-five per cent yields.

At a glance:

• Ray White's latest Between the Lines reports indicates the NSW childcare sector could be in for a post-election boost.
• There are 33 projects currently under construction with completion expected over the next 12 months, of which 24 are located within metropolitan Sydney in long-established suburbs.
• Ray White Head of Research Vanessa Rader said year ahead was an "exciting time" for the sector.

Ray White’s Head of Research Vanessa Rader said while volumes had been limited so far this year, recent developments pointed to a shift in sentiment within the sector.

“Post-election, we’ve already seen APRA relax serviceability on home loans, which is likely to improve confidence surrounding the investment into commercial investments and alternative asset classes," she said.
 
“With yields showing some uplift over the last year, we anticipate this may recover during the remainder of the year as sentiment shifts.
 
“The slowdown in development activity in this space will also subdue concerns around oversupply, with many projects notably in regional locations now more cautiously demand-led, keeping occupancy elevated.”
 
Ray White Commercial NSW Director Michael Ajaka said NSW’s strong population growth would ensure that childcare assets would remain at high occupancy.
 
“This heavily government subsidised income stream will continue to be attractive to private buyers, which is likely to result in downward pressure on yields,” she said.
 
“We’ve seen a slowdown in development of new childcare centres over the past two years after a long, high supply period, in line with the Sydney housing boom.
 
According to Ray White, there are 399 projects at various stages of planning throughout NSW, of which 78.2 per cent are located within the greater metropolitan Sydney area.
 
A total of 33 projects are currently under construction with completion expected over the next 12 months.

The majority of these are located within metropolitan Sydney in long-established suburbs.

Mr Ajaka said there continued to be an appetite for alternative, strong yielding assets across the country during this time of prolonged low interest rates.
 
"Although investment levels during 2018 increased, the caution shown by investors translated into a move in average childcare yields," he said.
 
“Investment yields for metropolitan assets traded at an average of 4.5 per cent in late 2017, with yields sub-four per cent seen across many auction rooms, while regional assets looked affordable hovering around the six per cent mark.
 
“Twelve months later, and as banks continued to tighten lending regulations, we saw these yields increase. The average rising to 5.8 per cent for metropolitan assets and closer to seven per cent in regional locations.”

 Ms Rader said the remainder of 2019 looked to be an exciting time for the small commercial market.
 
“The outcome of both the State and Federal Election is likely to give many investors greater certainty to reignite their investment activity into quality, secure yielding investments,” she said.
 
“Childcare assets are well poised to benefit from this renewed activity as banks relax their conditions around serviceability.
 
“However, consideration surrounding new stock needs to be strongly demand-led to keep occupancy levels high, this will have a positive impact also on yields throughout the remainder of this year."

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