A childcare centre is an income-producing asset, and that one fact changes how the whole deal is modelled. You are not building units to sell to owner-occupiers at a price per square metre. You are building a building that an operator leases from you on a long lease, and the completed value is set by capitalising that rent at a yield, not by comparable house sales down the street. Get the number of approved places, the rent the operator can sustain, and the cap rate right, and the feasibility usually follows. Get the planning wrong, and there is no feasibility at all, because most childcare sites fail at the development application (DA) stage long before a slab is poured.
This guide works the deal the way a property developer would: what makes childcare different from build-to-sell, whether the demand is real, how the asset is valued, what lease it needs to carry, what it costs to build, where the planning rules bite in each state and territory, how much land the space rules force you to buy, and how it all resolves into a residual land value and a margin. New Zealand sits at the end, because the model travels but the rules do not. None of this is planning, tax or financial advice. The rules and the numbers turn on your site and change over time, so treat it as a map and confirm the detail with your own advisers before you commit.
Why is childcare centre development different from a build-to-sell project?
Because you are creating an asset that is valued on its income, not sold by the square metre. In a build-to-sell townhouse or apartment project, revenue is the sum of the individual sale prices, and feasibility turns on the gross realisation value against total cost. A childcare development usually ends one of two ways: you build it, lease it to an operator, and hold it for the income, or you build it, lease it, and sell the leased freehold to an investor or a fund. Either way the number that matters is the completed value, and that value is the annual rent divided by a market yield.
That has three consequences for how you run the numbers. The tenant is the value. A twenty-year lease to a national listed operator with a parent-company guarantee produces a very different valuation to a five-year lease to a single-site operator, even for the identical building. The planning approval is the asset. A site with development consent for a 120-place centre is worth far more than raw land, and much of the development margin is earned by winning that approval. And the feasibility is yield-driven. A shift of half a percentage point in the capitalisation rate can move the completed value more than a large change in build cost, so the valuation assumptions deserve as much attention as the construction budget.
This is closer to a commercial or social infrastructure development than to residential subdivision, and the metrics that drive it, capitalisation rate, net operating income, and weighted average lease expiry, come from the commercial world.
Is there real demand for new childcare centres in 2026?
Demand for places is strong and policy is pushing it higher, but supply is uneven, so the answer for your specific site depends on the catchment rather than the national story. The national picture is supportive. The sector generates in the order of $22 billion a year in revenue and has grown steadily, childcare property has matured into a recognised institutional asset class, and Commonwealth policy is deliberately lifting demand.
The largest single change is the 3 Day Guarantee, which commenced on 5 January 2026 and replaced the old Child Care Subsidy (CCS) activity test. Under it, Child Care Subsidy (CCS) eligible families can access at least three days, or 72 hours a fortnight, of subsidised care regardless of how much the parents work or study. For families who previously received few or no subsidised hours, that is a material increase in affordable demand, and it tends to lift occupancy in centres that were running below capacity.
Supply is being pushed too. The Commonwealth committed $1 billion to the Building Early Education Fund from July 2025 to build and expand around 160 early childhood education and care (ECEC) centres in areas of need, weighted towards outer suburbs and regional towns described as “childcare deserts”. For a developer this cuts both ways. It confirms genuine undersupply in identifiable catchments, and it also means government-backed not-for-profit supply may land in some of those same catchments, so the local occupancy picture matters more than the headline.
The practical test is a catchment analysis, not a national forecast. Most developers work from the number of children aged zero to five in the drive-time catchment, the number of existing and approved places, and realistic occupancy at stabilisation. A site in a growth corridor with a thin existing supply and a committed operator is a very different proposition to a fifth centre in a mature suburb where three competitors already run below capacity. Localised oversupply is a real risk in parts of metropolitan Melbourne, Sydney and South East Queensland, and it shows up first as slower lease-up and rent pressure, both of which flow straight into your feasibility.
How is a childcare centre valued, and why does that set your end value?
A childcare centre is valued by taking the annual net rent the operator pays and dividing it by a market capitalisation rate, so the completed value moves with both the rent and the yield. This is the same capitalisation rate (cap rate) and yield approach used across commercial property. If a centre produces $500,000 of net rent a year and comparable centres are trading on a 5.0 per cent capitalisation rate, the indicative value is $500,000 divided by 0.05, or $10 million. That capitalised figure is your gross realisation value, the number every other line in the feasibility is measured against.
What capitalisation rate should you assume?
Use current transaction evidence for comparable centres, and treat the rate as the single most sensitive input in the model. Recent agency data points to metropolitan freehold childcare centres trading broadly in the 4.25 to 5.25 per cent capitalisation rate band, with prime metropolitan assets clearing below 5.0 per cent and regional centres generally in the 5.25 to 6.25 per cent range, per the CBRE early education report and transaction evidence reported by agencies including Stonebridge and Burgess Rawson. Yields compressed noticeably through the last cycle as investor appetite for long-leased social infrastructure grew.
Two cautions apply. Capitalisation rates move with interest rates, so a rate that looks right at the start of a two-year development may not hold at completion, and a small rise in the rate reduces value more than most developers expect. And the rate is covenant-sensitive: the same building lets on a keener yield when the tenant is an institutional-grade operator on a long lease than when it is a start-up operator with a short term. Modelling a range of capitalisation rates, rather than a single point, is generally the safer approach, and it is exactly the kind of input worth stress-testing in a sensitivity analysis.
How is the rent, and the net operating income, set?
The rent is anchored to what the centre can afford out of its trading revenue, and the figure that gets capitalised is the net operating income (NOI), not the gross rent. Net operating income (NOI) is the rent plus any recoverable outgoings, less any lease incentives and non-recoverable costs. In a childcare freehold the lease is usually structured so the tenant carries the outgoings, which keeps the landlord’s net operating income (NOI) close to the passing rent.
Rent itself is typically expressed either per approved place or as a rate that keeps the operator’s rent-to-revenue ratio sustainable. Most operators can carry rent when it sits at a manageable share of centre revenue, and rents pushed above that band tend to strain the covenant and show up later as arrears or a failed operator, which is the risk the eventual investor is pricing. A developer setting an inflated rent to manufacture a higher capitalised value is generally borrowing value from the covenant, and a competent purchaser’s valuer will discount it. The durable approach is a market rent the operator can actually pay across the cycle.
What lease does the centre need to be let on?
Childcare freeholds trade best on long, net leases with strong operator covenants and built-in rent growth, because that is what income investors pay a keen yield for. The market standard for an institutional-grade childcare freehold is generally an initial term of 15 to 20 years, often with further option periods that push the total potential commitment towards 25 or 30 years. That long duration is the core reason childcare has become a distinct asset class, and it directly drives the weighted average lease expiry (WALE) that buyers scrutinise. Listed owners illustrate the benchmark: childcare-heavy portfolios such as Arena REIT have reported a weighted average lease expiry (WALE) well beyond a decade, far longer than most retail or office portfolios.
Three lease features matter most to your end value. The leases are usually triple net, meaning the tenant pays outgoings such as council rates, insurance, land tax where applicable, and repairs, which keeps the landlord’s net operating income (NOI) close to the face rent and makes the income attractively passive. Rent reviews are typically fixed annual increases in the region of 3.0 to 3.5 per cent, or a consumer price index (CPI) linked review, sometimes on a “higher of” basis, which gives the buyer contracted income growth. And the operator covenant is priced directly: a national, listed operator with a parent-company guarantee is a different counterparty to a single-site operator, and the difference shows up in the capitalisation rate a purchaser will accept.
For a developer, the lease is not paperwork you sort out at the end. A pre-commitment from a credible operator, negotiated before or during the approval process, de-risks the whole project. It confirms the rent your feasibility relies on, strengthens the covenant that sets your exit yield, and can help with development finance, because a lender is lending against contracted income rather than a hope of leasing. Many of the most reliable childcare developments are effectively operator-led: the operator identifies the catchment, the developer delivers the building, and the lease terms are agreed up front.
What does it cost to build a childcare centre?
Build cost varies widely by location, construction method and specification, so treat any per-square-metre or per-place figure as an indicative starting point and get a quantity surveyor (QS) estimate for your actual scheme. As a market indication, construction cost per square metre for a purpose-built centre commonly falls somewhere between roughly $2,300 per square metre for a modular structural steel build and $3,500 to $5,500 per square metre for a fully finished traditional construction, with metropolitan projects at the higher end. Expressed per approved place, national build costs are often quoted in the order of $30,000 to $35,000 per licensed place, though this moves with state, site conditions and finish.
The build cost is only part of the total development cost (TDC). A realistic childcare budget usually also carries the land, site preparation and any demolition, external works and the outdoor play area, which is a significant cost in its own right given the outdoor space the regulations require, professional fees for architect, planner, traffic and acoustic consultants, council and authority contributions, and a construction contingency. The outdoor and landscaping component deserves attention because a childcare centre must provide a large, compliant and well-designed outdoor play space, so the cost is not a token line the way it might be on a commercial shed.
Financing and holding costs then sit on top. Land holding costs during the approval period, capitalised interest through construction, and leasing costs until the operator’s rent commences all belong in the total development cost. Because approvals for childcare can take many months and lease-up is not always instant, the holding and finance lines can be heavier than a developer used to quick residential turnover might assume, and they should be modelled month by month rather than estimated as a lump.
What are the planning rules, and where do childcare applications fail?
Planning is the single biggest risk in childcare development, because almost every new centre needs a development approval and a meaningful share of applications are refused on traffic, acoustic, space or amenity grounds. The rules vary by state, but the National Quality Framework (NQF) space requirements apply nationally, and the common failure points recur everywhere. Understanding both the state pathway and the reasons applications are refused is what separates a site that will approve from one that will burn twelve months and a legal bill.
New South Wales
In New South Wales, centre-based childcare is assessed under Chapter 3 of the State Environmental Planning Policy (Transport and Infrastructure) 2021, which consolidated the earlier education State Environmental Planning Policy (SEPP), and against the Child Care Planning Guideline. A development application (DA) is required for essentially all new centre-based facilities. The Child Care Planning Guideline sets the design and amenity expectations and generally prevails over a council’s local Development Control Plan (DCP) where the two conflict, which gives applicants a consistent statewide standard to design to. Where a proposal does not meet the unencumbered indoor and outdoor space requirements, the concurrence of the Regulatory Authority (the New South Wales Department of Education) is generally needed, so space compliance is not something you can quietly argue around at the council counter.
Victoria
In Victoria, a childcare centre needs a planning permit under the relevant council’s planning scheme, and car parking is a frequent sticking point under Clause 52.06 of the Victoria Planning Provisions (VPP). Clause 52.06 sets a statutory car parking rate for childcare centres, and the provision was overhauled recently, so the applicable rate and the way it is expressed should be confirmed against the current schedule for your council. Reducing the required parking is possible but generally needs a car parking demand assessment prepared by a traffic engineer. Neighbourhood amenity, overlooking, noise and traffic are the issues most likely to attract objections and to be tested at the Victorian Civil and Administrative Tribunal (VCAT) if the permit is refused.
Queensland
In Queensland, childcare is assessed under the local government’s planning scheme within the Planning Act 2016 framework, and the assessment category is what shapes the timeline and the risk. Councils set out the specific approvals a new centre needs, for example Brisbane City Council’s guidance for operators. Where the centre sits in a commercial or centre zone it may be code assessable, but in a residential zone it is frequently impact assessable, which triggers public notification and opens the approval to submissions and to third-party appeal rights in the Planning and Environment Court. The Queensland courts have shown a willingness to approve well-designed centres despite technical non-compliance where community need is demonstrated, as legal commentary on recent decisions from firms such as Colin Biggers & Paisley records, but impact assessment adds time and cost and should be priced into the holding budget.
South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory
Across South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory, the mechanism is the same in substance even though the instruments differ: a childcare centre needs development approval under the relevant state or territory planning system, assessed against the local scheme and the usual amenity, traffic and parking considerations. The National Quality Framework (NQF) space requirements described below apply in every one of these jurisdictions, because they sit in national law rather than state planning schemes. Where the local planning position is genuinely similar, the practical difference between these jurisdictions tends to be the parking rate, the notification rules and the appeal pathway rather than anything fundamental, but confirm the current scheme for your council rather than assuming.
Why do childcare development applications get refused?
Most refusals come down to traffic and parking, acoustic impact, non-compliant space, or general amenity, and often a combination that adds up to refusal even when no single issue is fatal. Drop-off and pick-up generate concentrated traffic peaks, so an application that does not convincingly resolve parking and queuing is exposed. Children’s noise is a recognised amenity issue, and an acoustic assessment that mitigates impact on neighbours is usually essential. Failing the unencumbered indoor or outdoor space requirements is a direct problem because it collides with national regulation, and objector arguments about local oversupply can carry weight. If a centre is refused, the appeal route (the Land and Environment Court in New South Wales, the Victorian Civil and Administrative Tribunal (VCAT), and the equivalent tribunal or court in each other state or territory) can add six to twelve months and significant cost, which is time your holding budget has to fund. The lesson most developers draw is to invest in the traffic, acoustic and design work up front rather than treat approval as a formality.
How much space, and therefore land, do you actually need?
The number of children you can enrol is capped by unencumbered indoor and outdoor space, and those two numbers effectively size the land you have to buy. Under the Education and Care Services National Regulations, which apply nationally, the operator must provide at least 3.25 square metres of unencumbered indoor space per child under regulation 107, and at least 7 square metres of unencumbered outdoor space per child under regulation 108. “Unencumbered” is doing real work in those rules: as the Australian Children’s Education and Care Quality Authority (ACECQA) guidance on the physical environment explains, passageways, toilets, nappy change areas, cot rooms, staff and administration areas and storage do not count towards the play space.
Those ratios drive the whole feasibility, because places are revenue. Outdoor space is usually the binding constraint at seven square metres per child, so a 100-place centre needs at least 700 square metres of unencumbered outdoor play area alone, before the building footprint, car parking, setbacks, deliveries and landscaping. That is why childcare development sites are commonly in the range of roughly 1,500 to 4,000 square metres, and why a site that looks large enough at first glance can quietly fail once the outdoor requirement, the parking and the setbacks are laid over it. Working backwards from the target number of places to the land area, rather than forwards from the land you happen to have, is the discipline that avoids buying a site that can never carry the centre the numbers assume.
It is worth being clear that meeting the space requirement is the operator’s licensing obligation, but it constrains the developer completely, because the building and site you deliver either support the licensed place count or they do not. Approval to operate the service, as an approved provider and service under the National Quality Framework (NQF), is the operator’s responsibility, not yours, but the demand for your building depends on an operator being able to get that approval, so the two are linked even though the paperwork is separate.
How do the numbers come together in a feasibility?
You work backwards from places to value, then subtract cost to see what is left for the land and the margin. The chain is short and each link is a number you can source. Start with the number of approved places the site and building can support under the space rules. Multiply by a defensible rent per place to get the annual rent, and net off any non-recoverable costs to reach the net operating income (NOI). Capitalise that net operating income (NOI) at a market capitalisation rate to get the completed value, which is your gross realisation value (GRV). From the gross realisation value, subtract the total development cost, the build, fit-out, outdoor works, professional fees, contributions, holding costs, finance and goods and services tax, and what remains is the profit and the land the deal can justify.
Run the same chain in reverse and it becomes a residual land value (RLV): fix your target margin, take the completed value, subtract every cost including that margin, and the balance is the most you can pay for the land and still hit your return. Residual land value is the number that tells you whether a listed site is worth pursuing, and it is highly sensitive to the two ends of the chain, the capitalisation rate at the top and the build cost at the bottom. This is where a feasibility model earns its keep, because childcare turns on assumptions that each move the answer a long way. Feasly suits this shape of problem: you can carry in the completed value, the capitalised net operating income (NOI), back-solve the residual land value the deal supports, and compare a 90-place scheme against a 120-place scheme side by side to see which pays.
Whether you measure success on development margin on cost or on revenue, or on internal rate of return if you intend to hold, the point is to model childcare as the income asset it is rather than forcing it into a build-to-sell template. A hold strategy in particular should be tested on a cashflow that runs past completion into the operating income, not just on a single completion-date profit.
There is a goods and services tax (GST) dimension worth flagging, because it is easy to get wrong. The childcare service the operator sells to parents is generally GST-free, but that is the operator’s supply, not yours. Your position as the developer is the ordinary commercial one: selling a newly built centre is typically a taxable supply, the margin scheme may be available on the sale, and leasing commercial premises is a taxable supply, so the mechanics follow the general rules for GST on property development and the Australian Taxation Office guidance on property rather than anything childcare-specific. It is a cost and cashflow line to model correctly, not a reason the asset is treated differently.
What about childcare development in New Zealand?
The model travels to New Zealand, but the rules sit in a different framework, so the planning pathway and the space numbers change while the lease-backed valuation logic stays the same. In New Zealand, early childhood education (ECE) centres are licensed by the Ministry of Education under the Education and Training Act 2020 and the Education (Early Childhood Services) Regulations 2008, against the Licensing Criteria for Centre-Based ECE Services. The space standards are set lower than Australia’s: the criteria require a minimum of 2.5 square metres of indoor activity space and 5 square metres of outdoor activity space per child, measured as usable space that excludes corridors, toilets and storage.
On the land-use side, a new centre generally needs resource consent under the Resource Management Act (RMA), assessed against the relevant district plan, with the same traffic, noise and amenity considerations that dominate Australian assessments. New Zealand developers should note that the Resource Management Act (RMA) is being replaced, so the consenting framework is in transition and the current position should be confirmed before relying on it. The commercial structure, a purpose-built centre let to an operator on a long lease and valued on a yield, mirrors the Australian market, so a developer comfortable with the Australian feasibility will find the New Zealand version recognisable once the space ratios and the consent pathway are swapped in.
What is different about the current market, and what should you watch?
The tailwinds are real, but the sector is under more scrutiny than it was, and that is starting to touch developers and investors, so factor it into your risk view rather than assuming a one-way market. Demand-side policy is supportive, with the 3 Day Guarantee lifting subsidised demand and the Building Early Education Fund confirming undersupply in identified catchments. Investor appetite for long-leased childcare has been strong, which is why yields compressed and values rose.
At the same time, quality and safety failures in the sector have drawn political and regulatory attention, and a New South Wales inquiry has examined the role of property developers and investors in the childcare market. The likely direction of travel is tighter regulation and closer attention to operator quality, which matters to a developer in two ways: the covenant strength of your operator becomes even more central to your exit value, and a weak or troubled operator is a more visible risk than it used to be. The workforce shortage in early childhood education is a related pressure, because an operator that cannot staff a centre cannot fill it, and an under-occupied centre strains the rent your valuation depends on.
None of this changes the underlying discipline. It sharpens it. The developments most likely to hold their value are the ones on well-chosen sites with a genuine catchment, delivered to a credible operator on a sustainable rent, and modelled on a capitalisation rate that reflects the covenant rather than the most optimistic recent sale.
The questions to answer before committing to a childcare site
Before you exchange on a site, the feasibility should be able to answer a short list of questions with evidence rather than optimism. Is there a real catchment, measured by children aged zero to five, existing and approved places, and realistic stabilised occupancy, rather than a general sense that the area is growing? What is the planning pathway, is the use code or impact assessable, what does the Child Care Planning Guideline or local scheme require, and have the traffic and acoustic issues been tested by consultants, not assumed away? Does the site actually carry the target places once the unencumbered outdoor space, car parking and setbacks are laid over it? Do you have, or can you secure, a pre-commitment from a credible operator on a rent that is sustainable against centre revenue? And does the deal still work when you flex the capitalisation rate and the build cost, or only at the single set of assumptions that make it look good?
A childcare development that answers those questions honestly, and still shows a margin at a conservative capitalisation rate, is generally a sound project. One that only stacks up at a keen yield, a full rent and a smooth approval is carrying more risk than the headline return suggests, and the current market rewards developers who price that risk in rather than out.
This guide is general information for property developers and others in the industry, not legal, planning, tax or financial advice. Planning rules, tax settings, regulations and market figures change and vary by location, so confirm the current position with the relevant primary sources and your own advisers before making decisions on a specific project.