What Is a Fair Rent for a Childcare Centre? Rental Benchmarks Explained

Rent is the single largest fixed cost in most childcare businesses — and the one that causes the most arguments between operators and landlords. Set it too high and the operator bleeds cash even at strong occupancy. Set it too low and the landlord leaves money on the table, or worse, attracts a tenant who undervalues the property and underinvests in the business. The difference between a fair rent and a bad deal often comes down to three numbers: rent per licensed place, occupancy cost as a percentage of revenue, and the remaining lease term.

How Childcare Rent Is Measured

Unlike standard commercial property, childcare centre rent is rarely quoted per square metre. The industry standard is rent per licensed place — the total annual rent divided by the number of approved places on the centre’s service approval.

According to Cushman & Wakefield’s Property Playground report, rents per licensed place across Australia currently range from approximately $1,500 to over $10,000, depending on location, building quality, and licence size. The national average now sits around $3,500 to $4,000 per place — but that average masks huge variation between cities. In Sydney, $4,000 to $6,000 per place is now standard across most metro suburbs, not just premium pockets. Melbourne and Victoria typically range from $2,500 to $4,000. Regional centres in strong-demand areas like the Central Coast, Hunter Valley, and South Coast of NSW are now seeing $3,000–$3,500 per place, while high-demand Sydney corridors and inner-city locations regularly push above $6,000.

For an 80-place centre in Sydney paying $5,000 per place, that is $400,000 in annual rent. At $3,500 per place in a strong regional centre, the same 80 places cost $280,000 — a $120,000 difference that flows straight to the bottom line.

The Occupancy Cost Ratio: The Real Test of Affordability

Rent per place tells you what you are paying. The occupancy cost ratio tells you whether you can afford it. This is total occupancy costs (rent plus outgoings) expressed as a percentage of gross revenue.

The widely accepted benchmark for childcare operators is:

Rent alone: 8–12% of gross revenue

Total occupancy costs (rent + outgoings): 12–22% of gross revenue

IBISWorld’s sector data historically placed property-related expenses at approximately 13.5% of sector revenue. Anything consistently above 22% total occupancy cost signals a problem — either the rent is too high, or revenue is too low.

Here is what this looks like in practice. A centre generating $2 million in annual revenue can sustainably carry rent of $160,000 to $240,000 (8–12%). If the rent is $300,000, that pushes occupancy costs to 15% before outgoings — still workable if outgoings are modest, but tight if triple net lease outgoings add another 5–8%.

What Drives Childcare Rent Higher or Lower

Six factors determine where a specific centre’s rent falls within the $1,500–$10,000+ per-place range. Understanding these helps both operators and landlords negotiate with better data.

1. Location and Demographics

Centres in high-income, high-demand suburbs with strong population growth command premium rents. Across metro Sydney, $4,000–$6,000 per place is now the norm — and a centre on the lower north shore or inner west may push well above $6,000. Melbourne metro ranges from $2,500 to $4,000, while regional NSW centres with strong demand (Central Coast, Hunter Valley) are now at $3,000–$3,500 — but they also charge lower daily fees, which is what keeps the occupancy cost ratio in line.

2. Building Quality and Age

Purpose-built, modern centres with compliant outdoor space, quality fitout, and efficient floor plans justify higher rents. According to Mollard Property Group, construction costs have risen from approximately $2,500 per square metre in 2014 to around $4,500 per square metre in 2024 — an 80% increase. Landlords who built or refurbished recently need higher rents to cover their development costs.

3. Licence Size

Larger centres spread fixed costs (including rent) across more places, which generally means lower rent per place. A 120-place centre often pays less per place than a 40-place centre in the same suburb, even if the total annual rent is higher.

4. Lease Term and Options

Longer lease terms with multiple renewal options reduce the landlord’s vacancy risk and increase the property’s investment value. In return, operators can negotiate lower starting rents or more favourable escalation terms. For a deeper look at how lease structure affects both parties, see our complete guide to childcare lease terms.

5. Daily Fee Levels

Rent per place means nothing without context on what the operator can charge. A centre charging $200 per day generates roughly $52,000 per place per year at 100% utilisation (260 weekdays). At $150 per day, that drops to $39,000. The same $5,000 per-place rent is 9.6% of revenue at $200/day but 12.8% at $150/day — already above the comfort zone. Operators in lower-fee markets cannot sustain the same absolute rents as those in premium suburbs.

6. Market Supply and Competition

In areas with multiple new centres opening — what the ACCC Childcare Inquiry identified as supply growth of 69% since 2013 — landlords face more competition for tenants, which can moderate rents. In undersupplied areas with strong demographics, the balance shifts to the landlord.

Common Mistakes in Setting Childcare Rent

Landlords Who Set Rent Too High

The most common landlord mistake is benchmarking childcare rent against other commercial uses without understanding childcare economics. A childcare operator cannot simply raise prices to offset higher rent — daily fees are constrained by the Child Care Subsidy (CCS) hourly rate cap, parent affordability, and local competition. A 10% rent increase does not translate to a 10% fee increase. It translates to a 10% hit on EBITDA.

Landlords who push rent above 12% of achievable revenue risk losing the operator, facing extended vacancy (childcare re-tenanting typically takes 3–6 months), and ultimately accepting a lower rent from the next tenant.

Operators Who Accept Rent Too Low

This sounds counterintuitive, but a below-market rent can signal problems. If the landlord is not covering their costs, they may defer maintenance, resist capital improvements, or sell the property to an owner who will push for a market rent review at the first opportunity. Operators are better off paying a fair, sustainable rent to a landlord who is motivated to maintain the asset.

Both Parties Ignoring the Escalation Structure

A rent that is fair at year one can become unfair by year five if the escalation mechanism is wrong. Fixed increases of 3–4% per annum are common in childcare leases. If CPI runs at 2% but rent escalates at 4%, the real cost of rent grows every year. If CPI runs at 5% but rent is fixed at 3%, the landlord loses purchasing power. For a detailed comparison of CPI, fixed, and market review mechanisms, see our guide to childcare lease terms.

How to Benchmark Your Own Rent

Whether you are an operator reviewing your current lease or a landlord setting rent for a new tenant, here is a practical framework:

Step 1 — Calculate your rent per place. Divide annual rent by approved places. Compare against the $1,500–$10,000+ national range. If you are in Sydney, benchmark against $4,000–$6,000 per place; for Melbourne, $2,500–$4,000; for regional centres in strong-demand areas, $3,000–$3,500. The national average of $3,500–$4,000 is a useful starting point, but always benchmark against your specific city and suburb.

Step 2 — Calculate your occupancy cost ratio. Divide total occupancy costs (rent + outgoings) by gross revenue. If it is above 22%, investigate why. If it is above 25%, the lease may not be sustainable.

Step 3 — Stress-test at 75% occupancy. Recalculate the ratio assuming occupancy drops from your current level to 75%. Does the business still generate positive EBITDA? If not, the rent is too high for the risk profile.

Step 4 — Compare against local fee levels. Check what comparable centres in your area charge per day. If your rent per place divided by annualised revenue per place (daily fee × 260 days × target occupancy) exceeds 12%, you are paying above the comfort zone.

Step 5 — Check remaining lease term and next review. A fair rent today with a market review in 12 months is a very different risk profile to one locked in for five years. Understand when your rent will next be tested against market.

For landlords seeking a formal assessment, our rental appraisal guide explains how professional valuers approach childcare rent.

What Fair Rent Means for Value

Rent is not just an operating expense — it directly drives the value of both the business and the property. For leasehold operators, high rent compresses EBITDA, which compresses the sale price when they exit. For a detailed breakdown of how lease terms affect business value, see our leasehold vs freehold comparison.

For freehold investors, rent is the income stream that determines yield. Stonebridge Property Group’s 2025 data shows metro childcare yields of 4.23–4.55% and regional yields of 5.30–5.89%, with yield compression of 25–50 basis points over the past year. A fair rent supports a sustainable yield without putting the operator under financial stress — which is the landlord’s biggest long-term risk.

Key Takeaway

Fair rent for a childcare centre is not a single number — it is a range that depends on location, licence size, building quality, and what the operator can charge. Use $3,500–$4,000 per place as the national average starting point, $4,000–$6,000 for Sydney metro, and $2,500–$4,000 for Melbourne — but always test it against the 8–12% occupancy cost ratio and stress-test at realistic occupancy. A lease where both parties make money is a lease that lasts.

Need help assessing whether your childcare rent is fair — as an operator or a landlord? Talk to ChildcareLink for a confidential rental assessment. Visit childcarelink.com.au or contact our team directly.

Sources

• Cushman & Wakefield — Property Playground Report (2024/2025); rent per place data and national growth trends
• Mollard Property Group — construction cost analysis and occupancy benchmarks
• Sanicki Lawyers — rent per place averages and occupancy cost ratios
• ACCC Childcare Inquiry Final Report (2024) — supply growth and breakeven occupancy data
• Stonebridge Property Group (2025) — transaction volume and yield data
• IBISWorld — property expense as percentage of sector revenue
• ChildcareLink — transaction and advisory experience

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.