The Rising Importance of Tenant Resilience
Author: Owen Cooney
A stable and predictable source of rental income is the holy grail for any commercial property investor. The key is knowing which businesses will offer a steady income stream regardless of the economic climate. The tenant’s ability to pay rent in all economic environments is critical to any landlord and in our post-COVID environment, investors are looking for tenants who are resilient and reliable.
Among the sectors garnering attention for their stability and growth potential, Early Childhood Education (ECE) has emerged as an essential service, supported by government policies, and increasing demand. Australian Property Investor magazine recently rated medical assets and childcare assets as their top two picks for recession-proof tenants.
Focus on Essential Services.
COVID-19 has emphasized the importance of commercial tenants involved in essential services such as supermarkets, medical facilities, and industrial sectors. ECE is now considered to be an essential service and therefore a preferred category of tenant. With government support and an escalating demand for quality childcare services, the childcare sector offers stability and growth potential for wholesale investors.
Government Support and Policy.
Government policies have reinforced the significance of the childcare sector. Recent budget announcements, such as extending 20 hours of free childcare to two-year-olds, demonstrate a clear commitment to supporting this sector. As most working families well know, it often takes two incomes to pay the rent or mortgage nowadays (especially in tough economic times), so demand for childcare will continue to grow amid strong political support for this sector. Furthermore, political parties have pledged additional measures, such as tax breaks for parents utilizing early childhood education services. These policies reflect the growing recognition of childcare as an essential service and the increasing demand for accessible and high-quality childcare resources.
Government Support and Policy.
Government policies have reinforced the significance of the childcare sector. Recent budget announcements, such as extending 20 hours of free childcare to two-year-olds, demonstrate a clear commitment to supporting this sector. As most working families well know, it often takes two incomes to pay the rent or mortgage nowadays (especially in tough economic times), so demand for childcare will continue to grow amid strong political support for this sector. Furthermore, political parties have pledged additional measures, such as tax breaks for parents utilizing early childhood education services. These policies reflect the growing recognition of childcare as an essential service and the increasing demand for accessible and high-quality childcare resources.
Investment Considerations.
While the childcare sector presents prime commercial investment opportunities, it is crucial to assess the strength of tenant covenants. Not all providers are equal, and careful attention must be paid to the financial standing and track record of potential tenants. While some providers may face financial challenges, many successful ECE providers thrive due to factors such as scale, location, and access to resources. Larger national or international businesses with multiple sites and robust financial backing tend to exhibit greater stability – a core fundamental to consider with any commercial property investment.
Stability and Predictable Income.
Similar to medical assets, childcare centers typically offer long leases and stable tenants, ensuring a predictable source of rental income for wholesale investors. The reliable cash flow from long-term lease agreements provides a sense of security and enhances the investment’s attractiveness. These factors, combined with the sector’s potential for growth, make childcare centers an appealing option for investors seeking stability in their commercial property portfolios.
Stability and Predictable Income.
Similar to medical assets, childcare centers typically offer long leases and stable tenants, ensuring a predictable source of rental income for investors. The reliable cash flow from long-term lease agreements provides a sense of security and enhances the investment’s attractiveness. These factors, combined with the sector’s potential for growth, make childcare centers an appealing option for investors seeking stability in their commercial property portfolios.
