Heightened demand for specialist childcare businesses is set to continue in 2023

The business reports that, in 2022, the specialist childcare market experienced heightened activity, with organic development sites for new specialist childcare operations and properties offering potential for SEND day and residential use being transacted amid bidding wars that were fuelled by intense buyer demand. This level of appetite is expected to continue in 2023.

In 2022, Christie & Co saw an uptick in market buoyancy and transaction pace in the specialist market. Due to capacity challenges, a stark rise in the demand for services, and an increase in children’s home providers creating hub and spoke services - whereby children have access to education away from their residential setting - established operators up and down the country eagerly pursued organic expansion opportunities as well as established operational children’s homes and specialist childcare businesses. There was also further interest from organisations and investors keen to enter the market. As such, the increase in former independent schools being brought to market with vacant possession - many of which present renovation potential - was met with great interest from buyers across the specialist sectors.

Activity in the sector is largely centred around operators with urgent requirements to identify, lease, and buy properties capable of creating new provision to meet the rising demand for their services. Along with the growth in appetite for residential childcare services, Christie & Co saw a small number of corporate operators rationalising their portfolios for a variety of reasons. Vacant children’s homes proved very popular with smaller regional groups and new market entrants seeking strategic growth opportunities.

Due to the demand, many transactions were agreed and completed in just a matter of weeks. Amid competitive sales processes to acquire properties and suitable sites, operational trade buyers endured a raft of challenges associated with the ‘speedy’ facilitation of refurbishments, registration, and recruitment of a suitably qualified workforce to deliver high-quality services. This led many providers to seek funding for their plans, which resulted in a busy year for Christie & Co’s valuations team which was commissioned by banks and investors alike to provide formal red book valuations, largely for new secured lending purposes.

Pricing index

Competitive bidding between buyers and an increase in high-quality assets coming to the market fuelled a price increase of 6.3 per cent in 2022. Anticipating a rise in the volume of assets of differing quality coming to the market in 2023, Christie & Co expects a slightly lower price index movement for some assets this year.

Sentiment Survey

The business property adviser anonymously surveyed childcare and education professionals from across the UK to gather their views on the year ahead. When asked about their sentiment for 2023, 33 per cent said they feel positive, 35 per cent feel neutral, and 32 per cent feel negative. When asked about their sale and acquisition plans, 73 per cent said they’re looking to either buy, sell or both in 2023.

Funding Landscape

In a segment on funding in the sector, Christie Finance notes that, in 2023, there is likely to be an increase in borrowers seeking refinancing opportunities. Some SMEs that have seen diminishing revenues and earnings could encounter reduced enthusiasm from their incumbent lenders, subject to business specifics and financial performances. Despite energy costs, base rate increases, and a mass of political changes, financially sustainable, high-quality, well-managed childcare and education businesses with good leadership should remain a stable lend for banks and investors.

Market Predictions

In the year ahead, Christie & Co expects:

• There will be a high level of demand for specialist childcare businesses and properties, and complex children’s services will achieve the largest premiums
• Demand from corporate and regional operators across England and Scotland will continue to outstrip supply, resulting in heady prices being achieved
• The Welsh Government’s ‘Eliminate’ policy – which poses a significant threat – could worsen the children’s home sufficiency crisis
• New regulatory standards for leaving care services will drive businesses and authorities’ quest for quality
• We will see continued investment into the expansion of therapeutic care services
• There will be ongoing challenges associated with the demand for services, staff recruitment, capacity limitations, and increased operational costs

Julie Kitson, Director at Christie & Co, comments, “Demand from buyers for existing operational businesses remains unprecedented, however, few business owners were open to selling during 2022. With local authorities and commissioners urgently seeking suitable services for children and young people in need, many business owners focused on striving to increase capacity to service this surge in demand, rather than sell. For those that choose to sell their businesses in 2023, given prevailing demand and supply factors, owners of the most desirable businesses will most benefit from the heady prices on offer.”

For the full report, visit: christie.com/business-outlook-2023

For further information on this press release, contact:
Phoebe Burrows, Corporate Communications Manager
P: 07540 063 598 or E: phoebe.burrows@christie.com