Childcare Centre Rental Appraisal: What Landlords Need to Know

Most landlords who own childcare property have no idea whether the rent they’re receiving is fair. They signed a lease five or 10 years ago, annual increases have ticked along at CPI or a fixed percentage, and they’ve never questioned whether the market has moved past them. In a sector where rents per licensed place can vary from $2,000 to over $4,000 depending on location and quality, that gap between your current rent and actual market rent could be costing you tens of thousands a year.

A proper rental appraisal is the only way to know where you stand — and it’s the foundation of every smart decision a childcare landlord makes, from lease renewals to property sales.

How Childcare Centre Rents Are Calculated

Childcare properties are not appraised like standard commercial or retail space. You won’t see rents quoted per square metre the way you would for an office or warehouse. Instead, the industry standard is rent per licensed place — the number of children the centre is approved to accommodate under its service approval.

This metric makes sense because a childcare operator’s revenue is directly tied to the number of enrolled children, not the physical footprint of the building. A 100-place centre generating $3,000 per place in rent delivers $300,000 per annum — and whether that’s fair depends entirely on what comparable centres in the area are paying.

According to industry data, metropolitan childcare centres currently pay between $2,500 and $4,000 per licensed place, with inner-city Sydney and Melbourne centres at the higher end and outer suburban locations closer to $2,000–$2,800. Regional centres typically sit below $2,000 per place. These ranges shift based on market conditions, so a current appraisal is essential.

Six Factors That Determine Your Rental Rate

Not all childcare centres command the same rent, even in the same suburb. The rate per place is influenced by a combination of property-specific and market-specific factors that any competent appraisal should account for.

1. Location and Demographics

A centre in a high-growth corridor with strong family demographics and limited competition will attract a premium rent. The key data points are population density for children aged 0–5, the number of competing centres within a 2–3 kilometre radius, and local household income levels. According to the Australian Bureau of Statistics, the number of children in centre-based care has grown by 60% since 2010, reaching over 910,000 nationally — but that growth is concentrated in specific areas.

2. Licensed Places and Built Capacity

More places generally mean more revenue capacity and a more viable operation for the tenant. A 120-place purpose-built centre is a fundamentally different proposition to a 40-place converted house. Larger centres tend to achieve higher rents per place because fixed costs are spread more efficiently, making the operation more profitable for the tenant and the rent more sustainable.

3. Quality and Condition of the Building

Purpose-built centres with compliant outdoor play spaces, modern fit-out, dedicated drop-off zones, and proper acoustic separation command higher rents than older conversions. If your property requires significant capital expenditure to meet current regulatory standards — for example, the outdoor space requirements under the National Quality Framework — expect that to suppress the achievable rent.

4. Lease Terms and Tenure Security

Operators will pay more for certainty. A lease with a long unexpired term (10+ years remaining) and multiple option periods gives the tenant security of occupation, which supports their investment in fit-out, staffing, and community reputation. From a landlord’s perspective, a long lease with fixed or CPI-linked rent reviews provides income security, but it can also mean your rent falls behind market if the reviews don’t keep pace.

5. Tenant Financial Performance

While a landlord doesn’t set rent based on a tenant’s profit, the operator’s financial health matters. A centre running at 90%+ occupancy with strong fee income can sustain a higher rent than a struggling centre at 60% occupancy. Valuers consider the historical financial performance of the operation when assessing whether the current rent is sustainable and what the market would bear for a replacement tenant.

6. Competition and Local Supply

If three new centres have opened within two kilometres of your property in the last 18 months, your tenant’s occupancy may be under pressure — and so is your ability to push rents higher. A proper rental appraisal includes a catchment analysis: a review of competing centres, their licensed places, their occupancy levels, and any new developments in the pipeline.

Common Mistakes Landlords Make

Relying on CPI Alone

Fixed annual increases of 3–4% or CPI adjustments are standard in childcare leases, but they don’t replace a market rent review. Over a 10-year lease, CPI increases can leave you 15–25% below market if the sector has experienced strong demand growth — which it has. According to Stonebridge Property Group, childcare property yields have compressed by 90 to 130 basis points in recent years, with metropolitan properties now trading at 4.25% to 5.25%. That yield compression reflects rising capital values, which in turn reflects rising rents.

Using Residential Comparables

Childcare is a specialist asset class. Comparing your rent to what a residential property next door might achieve, or to generic commercial rates in the area, tells you nothing. Valuers assessing childcare rents use only comparable evidence from other childcare centres — anything else is irrelevant.

Ignoring the Lease Renewal Window

Most childcare leases contain option periods where the tenant can extend the lease, often on pre-agreed terms. If you want to negotiate a market rent review at option exercise, you need to understand your current market position well before the option date arrives. Getting an appraisal six months out, not six weeks, gives you time to negotiate from a position of knowledge.

Not Using a Specialist Valuer

A generalist property valuer can assess your centre, but the result may lack the childcare-specific insight that drives accuracy. Specialist valuers maintain databases of childcare rental transactions, understand the per-place methodology, and can interpret catchment data. Always ask whether the valuer has current comparable evidence from childcare centre leases — not just general commercial transactions.

When to Get a Rental Appraisal

You should commission a rental appraisal in any of these situations:

A lease renewal or option exercise is approaching, and you need to understand whether the current rent reflects the market. A rent review clause is being triggered, particularly a market rent review rather than a CPI or fixed increase. You are considering selling the property, and you need to confirm whether the passing rent is at, above, or below market — because this directly affects the property’s investment value and yield. You are acquiring a childcare investment and need to verify that the advertised yield is based on a sustainable market rent, not an inflated or below-market figure. Or you are in a rental dispute with your tenant and need an independent market opinion.

What a Good Appraisal Includes

A thorough childcare rental appraisal should cover the property’s physical characteristics and licensed capacity, an analysis of comparable rental evidence from other childcare centres in the area, a catchment analysis identifying competing centres and their occupancy, an assessment of the current lease terms and how they affect rental value, commentary on market conditions and rental trends, and a clear conclusion on the market rent expressed as a rate per licensed place and a total annual figure.

The appraisal should be prepared by a registered valuer with demonstrable experience in childcare properties. Industry data from firms such as Cushman & Wakefield shows that rents per place range from approximately $1,200 at the low end to over $7,000 for premium inner-city locations — a range wide enough that getting it wrong can cost landlords serious money.

Key Takeaway

A childcare centre is a specialist commercial asset, and its rent should be assessed by specialist methods. The rent-per-licensed-place metric is the industry standard, and it’s influenced by location, building quality, lease structure, tenant performance, and local competition. If you haven’t had a proper rental appraisal in the last two to three years, there’s a strong chance your rent is no longer aligned with the market — in either direction.

Need a rental appraisal for your childcare property? ChildcareLink specialises in childcare property leasing, management, and advisory. Contact our team for a confidential assessment of your property’s rental position. Visit childcarelink.com.au or contact us directly.

Sources

• Cushman & Wakefield — Australian Childcare Property Report (2024)
• Stonebridge Property Group — Childcare Market Transaction Data (2025)
• Colliers — Childcare Centre Asset Demand Report (2025)
• Australian Bureau of Statistics — Childhood Education and Care data
• IBISWorld — Child Care Services in Australia (2026)
• Garmony Property Valuers — Childcare valuations and catchment analysis methodology

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.