Child Care Industry Trends: 2022 vs. 2023

Key Industry Challenges and Opportunities

Real Estate Market Slowdown

Real estate sales volume for child care centers decreased significantly in 2023 compared to 2022, falling from $484 million to $162 million. The rapid increase in interest rates has driven cap rates higher, leading to a more cautious investment environment. However, the demand for stable net lease opportunities ensures continued interest in the sector.

Notable Transactions

Bright Horizons: Sold 55 child care centers for $584M (June 2023).
Little Sunshine’s Playhouse and Preschool: Sold 12 properties for $127.5M (August 2023).
KinderCare: Sold a portion of their portfolio for $166M (October 2023).

These sales underscore the continued appetite for large-scale child care operations among institutional investors.

The Decline of Small Providers

Home-based and small child care centers, which make up 95% of the market, were disproportionately impacted by the COVID-19 pandemic. Many of these providers survived temporarily through American Rescue Plan Act (ARPA) funding but are now closing as the funding ends. Over 70,000 child care providers are expected to shut their doors permanently, affecting 3.2 million children.

This wave of closures is creating opportunities for larger operators like Bright Horizons, KinderCare, The Learning Experience, and Learning Care Group to expand their market share. For investors, this presents a unique chance to acquire properties with long-term leases and strong tenant guarantees.

Child Care Real Estate Investment Insights

Why Child Care Centers Are Irreplaceable

Child care is an essential service that is both recession-resistant and in high demand. With more than 30% of American families living in child care deserts, there is a significant need for additional capacity.

Attractive Investment Features

Long Leases: Most early education buildings feature 15- to 20-year leases.
Stable Cash Flow: Triple-net (NNN) lease opportunities ensure predictable returns.
High Demand: Despite rising cap rates, properties with favorable lease structures continue to attract buyers.

Market Trends by Operator

The Learning Experience

2022: Average cap rate of 6.93%; 24 properties sold.
2023: Average cap rate of 6.73%; 11 properties sold.
For Sale (2023): 23 properties with an average cap rate of 6.65% and NOI of $317,702.

Kiddie Academy

2022: Average cap rate of 6.2%; 14 properties sold.
2023: Average cap rate of 6.94%; 7 properties sold.
For Sale (2023): 7 properties with an average cap rate of 6.58% and NOI of $292,095.

KinderCare

2022: Average cap rate of 5.92%; 19 properties sold.
2023: Average cap rate of 6.21%; 5 properties sold.
For Sale (2023): 13 properties with an average cap rate of 6.1% and NOI of $340,995.

Why Work With Little Scholars Real Estate

Navigating the child care real estate market requires specialized expertise. At Little Scholars Real Estate, we bring a unique combination of experience and insight:

Track Record: Over 30 years developing 25 schools and leasing 50 additional locations in nearly 20 states.
Operational Experience: Successfully operated two Tutor Time centers for 18 years with 350 children enrolled.
Proven Results: In a recent KinderCare transaction, we negotiated a 25% rent increase and a 10-year lease extension, selling the property within three months for a $1 million premium.

Take Advantage of Current Market Dynamics

With cap rates on an upward trajectory and 70,000 child care providers exiting the market, now is an excellent time to explore investment opportunities. Whether you’re looking to buy, sell, or renegotiate a lease, our team has the expertise to guide you through every step of the process.

Alan Stahl Little Scholars Real Estate Phone: 818-917-7723 Email: alan@LittleScholarsRE.com Website: www.LittleScholarsRE.com