How to Find and Secure a Good Childcare Tenant

A childcare property with the right tenant is one of the most secure income streams in Australian commercial real estate. The same property with the wrong tenant is a single-purpose building with a broken lease, a regulatory approval you don’t own, and a re-letting campaign measured in months, not weeks. Finding and securing a good childcare tenant is not a leasing exercise — it is the underwriting decision that determines what your asset is worth for the next 20 years.

Why the Tenant Decision Is Different in Childcare

When you lease a warehouse, you are betting on a location. When you lease a childcare property, you are betting on a business. The rent is paid out of one centre’s enrolment performance, and the building itself has limited alternative use if that performance fails.

Three features make childcare tenancy unique. First, the term: childcare leases typically run 15–20 years initial with options beyond — so you live with this decision longer than most marriages last. Second, the regulatory layer: your tenant must hold provider approval and the centre’s service approval, and their compliance record directly affects whether the rent keeps arriving. Third, the revenue base: a large share of your tenant’s income flows from the Child Care Subsidy, which is a strength — but it is the tenant’s operational quality that converts that subsidy into enrolments, and enrolments into rent.

What Tenant Demand Looks Like in 2026

The good news for landlords: operator demand for quality premises is real. Cushman & Wakefield’s recent leasing evidence includes Singapore-based Kinderland Early Learning taking a 170-place Melbourne centre on a 15-year term at $545,700 per annum, and Victorian operator Happy Sprouts Learning signing a 15-year lease on a 127-place centre at $531,200 per annum — with international operators increasingly viewing Australia as an expansion market.

The structure of the market also favours landlords seeking tenants. According to CBRE Research (March 2026), Australia has roughly 9,750 centres and the top three operators hold only around 11% market share — this is one of the most fragmented sectors in commercial property, which means the tenant pool runs from ASX-listed groups through mid-size franchises to ambitious single-centre operators.

But demand is uneven. CBRE Research (March 2026) notes around 30,000 new places are added each year while roughly 5,000 are lost to closures — and the Australian Childcare Alliance has flagged emerging oversupply in some localities. The same building that attracts five operator offers in an undersupplied catchment may attract none two suburbs away. Before marketing a property, do the supply work — our guide to demographics and supply data in site selection covers exactly what to check.

The Five Checks Before You Sign

Over our transactions and leasing campaigns, five checks separate the tenants who perform from the tenants who renegotiate.

1. Track record across their portfolio, not just their pitch. Ask where else the operator runs centres, then look those services up on the national registers — NQF ratings are public. An operator whose existing centres rate Meeting or Exceeding, with stable occupancy, is showing you their future behaviour in your building. A first-time operator is not automatically a bad tenant, but they are a different risk and should be priced and secured differently.

2. The financial substance behind the leasing entity. Childcare leases are commonly signed by special-purpose companies with few assets. Legal advisers in the sector, including Sanicki Lawyers, recommend landlords obtain the tenant’s business background with references and a certified assets-and-liabilities statement for both the entity and its guarantors. If the entity is hollow, your real covenant is whatever guarantee sits behind it.

3. Rent affordability against realistic revenue. A lease only performs if the centre underneath it does. CBRE Research (March 2026) puts childcare rent at typically 8–20% of centre revenue — we set out where in that band a sustainable deal sits in our fair rent benchmarks guide. Model the operator’s revenue at realistic occupancy for that catchment, not at the 100% the business plan assumes.

4. Fit between operator model and catchment. A premium brand charging top-quartile fees needs a demographic that pays them. A community-priced model needs volume. Acumentis frames leased childcare risk as three pillars — operator viability, catchment demographics, and lease terms — and the middle one is the most often skipped. The strongest operator in the wrong catchment is still the wrong tenant.

5. The security package. Bank guarantee (commonly 6–12 months’ rent for newer operators), director or parent-company guarantees, and clear default provisions. The time to negotiate security is before signing, when you have leverage — not at the first missed payment, when you have none.

Structuring a Lease That Lasts 20 Years

Tenant selection and lease structure are two halves of the same decision. The mechanics are covered in detail across our leasing guides, so in brief: the key lease terms every childcare lease must address; rent review structures — sector practice favours fixed 3–4% annual increases, which Sanicki Lawyers notes also lets the tenant budget reliably; and make-good obligations for a fitted, regulated premises.

Two structural points deserve emphasis. For new developments, the deal is usually documented as an agreement for lease well before completion — Burke Lawyers notes this is standard in childcare projects — which means you are selecting your tenant before the building exists, and the five checks above matter even more. And on title: if your property is strata, confirm the operational essentials are within your control before promising them to a tenant — our strata versus Torrens title guide explains why.

Red Flags We See in Tenant Campaigns

A few patterns reliably precede trouble: an operator who negotiates hardest on the rent number but shows no interest in the rent review mechanism (they are not planning to be there at the first review); reluctance to provide portfolio performance or guarantor financials; a business plan with occupancy assumptions above anything achieved in the catchment; and pressure to compress due diligence because “another landlord is ready to sign.” A good tenant expects to be vetted — sector commentary from Mollard Property Group describes 2026 as a performance-driven market, and performing operators behave like it.

What the Right Tenant Does to Your Asset Value

Tenant covenant is one of the biggest inputs to the yield your property trades at — two comparable centres can price 75 or more basis points apart on tenant strength alone, as we covered in our childcare cap rates guide. Securing a stronger operator on a cleaner lease doesn’t just de-risk the income; it reprices the asset. That is why tenant selection is the highest-leverage decision a childcare landlord makes — and why it sits at the centre of our childcare property investment guide. If you are weighing what a re-tenanted or newly leased centre could be worth, our 60-second estimator gives you a starting figure before a formal rental appraisal.

Key Takeaway

A good childcare tenant is found by reading the operator, not the offer: portfolio track record, real financial substance, rent the catchment can sustain, model-to-market fit, and a security package negotiated up front. Get those five right and the lease largely takes care of itself — for 20 years.

Own a childcare property or development site and need the right operator in it? Talk to ChildcareLink’s specialist leasing team for a confidential discussion. Visit childcarelink.com.au or contact our team directly.

Sources

• Cushman & Wakefield — early learning leasing market commentary and Melbourne leasing transactions (2025–26)
• CBRE Research, “Child Care Centres: Intelligent Investment”, March 2026 (cited with permission)
• Sanicki Lawyers — childcare sector tenant due diligence and lease structuring commentary
• Acumentis — risks and rewards of childcare leased investment
• Burke Lawyers — agreements for lease in childcare property development
• Australian Childcare Alliance — sector supply commentary
• Mollard Property Group — 2026 childcare sector commentary
• ChildcareLink — transaction and leasing 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.