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The Children´s Day Care Real Estate Market in Germany

The provision of day-care for working parents has been climbing up Germany’s political agenda in recent years, and with the current restrictions as a result of the COVID-19 pandemic leading to serious shortages in childcare capacity, the issue is now in the centre of public focus.
  • As an asset class, day-care and nursery school sites are a niche market, but one characterised by high demand
  • Thanks to the long-term planning timescale, day-care centres offer a high degree of investment security to landlords
  • Challenges in the day-care property segment include market fragmentation and a lack of transparency
The provision of day-care for working parents has been climbing up Germany’s political agenda in recent years, and with the current restrictions as a result of the COVID-19 pandemic leading to serious shortages in childcare capacity, the issue is now in the centre of public focus. Yet even before Corona, there were already not enough places in the country’s nursery schools, crèches, and kindergartens to cover demand for professional childcare. In a new report, the internationally active property consultancy Cushman & Wakefield (C&W) has analysed the property market behind this sector, showing how investments in the buildings in which day-care facilities operate are an up-and-coming asset class. The authors Simon Jeschioro, Head of Investment Advisory, and Jan-Bastian Knod, Associate Investment Advisory, also offer insights into professional childcare more generally and into socio-demographic factors at play in the market.

The key driver behind the strong growth in demand for day-care property is the ongoing shift in daily life in Germany as, in recent years, the total number of women in work has risen at a sharp, sustained rate; moreover, following the birth of a child, women already in the workforce are, on average, returning to work earlier. This shift has been accompanied by an increase in the number of single-person and two-person households, which in turn leads to an increased dependency on childcare services. What is more, there has been a marked rise in the birth rate in Germany over the last ten years, with the average now running at 1.57 births per women. The result of this combination of factors is that there has been a jump in demand for day-care places, both in early-years (up to age 3) and pre-school (age 3 to 6). 

More day-care places coming on stream
At present, Germany spends around 0,6% of its GDP on childcare services, which puts it mid-table in the European leagues. Over the last two decades, state investment has led to the creation of more day-care places as the number of kindergartens and pre-schools rose by 22% from 46,600 in 1994 to 56,700 in 2019.

In parallel,  between 2006 and 2019, the proportion of children aged 0 to 6  attending day-care facilities went up by 27% to reach 93%; yet at the same time, a study by the German Economic Institute (IW) suggests that, in 2018, there was still a shortfall of around 300,000 childcare places for children up to 3 years of age – with a correspondingly lower proportion in this age category in day-care (52.1% in the states of former GDR and 30.3% in the old FRG). Since 1st August 2013, all children have a statutory right to a place in early-years day-care from age one.

As an asset class, day-care property is in strong demand
In Germany, childcare is delivered by a mix of local-authority and private providers, and in recent years, the ratio between the two has been changing as the number of facilities operated by private providers has risen continuously against a decline in state-run centres. In view of the long planning timescales at play in the sector, private providers tend to sign 20-to-30-year leases with landlords, and the length of these commercial rental agreements, as well as the nature of day-care centre operations, represent a comparatively high degree of cash-flow security for site owners. Importantly, local authorities and German federal states have a legal duty to uphold childcare provision, meaning that there is a very low risk of a day-care provider defaulting on rental payments; moreover, the cooperative approach taken between municipalities and site landlords tends to help deliver an attractive risk-to-yield profile from an investment point of view.

Expert interviews
In order to provide a comprehensive expert view of the market, Daniel Wolf, Head of Asset Management at E&G Funds & Asset Management GmbH, Sascia Hauke, Head of Transaction Management, and Anahita Afzalkhani, Senior Transaction Manager at AviaRent were interviewed for the report and offer detailed assessments of the challenges and opportunities in the day-care property segment. 

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