Nursery World Webinar: The childcare market - Looking up

Courteney Donaldson, managing director of child centric sectors at Christie & Co, presented findings from Christie’s recently published report Business Outlook 2021: Review. Realign. Recover.

She explained how 2020 started on a positive note, with a host of small and large transactions – but on 20 March, everything was put on hold. ‘The 183 projects we were working on suddenly stopped,’ she revealed. ‘The sellers and buyers had to immediately turn their attentions to what was happening in their businesses.’

However, bounceback came relatively quickly, she reported, and after Easter, buyers started to return, with market activity gaining pace. ‘We saw a massive increase of people registering with us specifically looking to invest into the childcare sector,’ said Ms Donaldson. ‘Because of that first lockdown, the profile of the sector was significantly raised,’ she added, as parents realised the challenges of engaging their own young children.

Nick Brown, regional director and head of brokerage for child centric sectors at Christie & Co, said while things have been difficult for many nursery owners, the number of distressed asset instructions was lower than predicted, currently standing at just 1 per cent.

‘We are not seeing as many distressed assets as we thought we might,’ he said. ‘Prices have stayed pretty consistent, when they could have dropped a long way – and have in other sectors.’

However, there is bound to be some attrition, he said, particularly among settings that were already struggling pre-Covid.

While loans and the furlough scheme are currently masking the financial picture for many operators, a sector poll carried out by Christie & Co found 78 per cent of nursery owners felt positive or neutral about market recovery in 2021, with the majority (59.2 per cent) believing it will take one to three years for the sector to return to pre-Covid levels.

Around half of respondents (52 per cent) said they were interested in buying nursery businesses in 2021, while 22 per cent said they were looking to sell.

‘We have had challenges and that can affect price, but what we are seeing in the market is high-quality assets that are recovering well are achieving sales at pre-Covid prices,’ said Mr Brown.

Demand has increased from both private-equity firms and local operators, he added, saying, ‘There are challenges around funding because a lot of banks have been tied up with CBIL (Coronavirus Business Interruption Scheme) and bounceback loans, but that is settling down: we are seeing banks do want to loan.’

Occupancy rates

Occupancy will be a key driver of recovery for providers, with significant implications for funding and finances. ‘We have seen childcare steadily increase since lockdown restrictions were first eased in spring 2020, but occupancy has not yet returned to pre-Covid levels,’ said Sally Bonnar, chief operating officer at Co-op Childcare.

She said Co-op would be ending the year with occupancy 8 per cent below normal, mostly due to delayed starters. ‘I feel quite optimistic that by 2022 we will get back to some sort of normality from an occupancy perspective, although parents are going to request more flexibility.’

Aatif Hassan, founder and chairman at Dukes Education, a family of independent nurseries and schools, was also optimistic about recovery. He said while the first lockdown was difficult, occupancy in September 2020 was higher than expected, and by October and November was actually higher than pre-Covid levels.

‘That sounds strange, but talking to our parents, they couldn’t do Zoom calls with their toddlers wrapped around their ankles, so they were sending them to nursery,’ he said. ‘They also realised playgroups were closed, all the other socialisation processes were closed, and nursery became for the child and for the parents the only social part of the community.’

Occupancy fell again in January to around 80 per cent of capacity, Mr Hassan said, but the Prime Minister’s target school reopening date of 8 March has boosted applications and enquiries. ‘The phones went berserk,’ he said. ‘What it is doing is giving people confidence the world is opening up, and they are booking places.’

Nursery groups have found that different settings have different challenges depending on demographics, said Mr Brown. Mr Hassan concurred. ‘The nursery market is very micro, it is literally the mile around your nursery or, if you are a commuter nursery, the few miles,’ he said.

‘Unemployment rates will clearly impact on occupancy levels, but every nursery is serving its own specific market and it’s a postcode localised business,’ said Ms Donaldson.

Innovation

Innovation is key in driving occupancy, commented Mr Hassan, such as offering Forest Schools and after-school clubs. ‘That is what has shifted occupancy; what else can you do for your customer? And the sector has risen to it – it is an exciting time right now.’

Staffing continues to be an issue, with some staff self-isolating and shielding, and both Mr Hassan and Ms Bonnar cited it as their biggest challenge.

Providers will need to look at salary increases, said Mr Hassan. ‘It would be a brave operator to not give your staff an inflationary salary increase given what they have done – when the Prime Minister said lockdown, they still came into work,’ he said. ‘There is an expectation and a justification for giving them increases, and competitive pressures will mean we will have to as well.’

The panel cited innovations brought in during the pandemic which would change practice for the better, such as increased transparency, better communication with parents, flexible hours, and better use of technology – for example, through offering virtual tours and upgrading websites.

Funding

Funding also continues to be an issue when it comes to recovery, especially for settings more heavily reliant on funded places, with different local authorities taking different approaches.

‘No provider should have to operate at a loss as a result of delivering the Government’s childcare commitments,’ said Ms Bonnar. ‘We have faced the greatest sustainability challenge of our career as a result of the cost of delivering childcare rocketing during the pandemic, and the local authority funding shortfall has only widened as a result.’

On the other hand, Mr Hassan pointed out, consumer spend could rise as more affluent families may have higher disposable incomes. ‘A large portion of our market haven’t gone to restaurants or had holidays or bought the clothes they would have done, and where better place to spend it than on their children?’ he said. ‘As a sector I am hugely optimistic about the future, but the Government needs to provide a very short-term intervention to help us through this.’

THE PANEL

Christie & Co was delighted to collaborate with Nursery World for the ‘Review. Realign. Recover: Day Nursery Market Sentiment & Looking Ahead to 2021’ webinar on 28 January.

Christie & Co’s Courteney Donaldson (pictured left, managing director – child centric sectors) and Nick Brown (above, regional director and head of brokerage – child centric sectors) were joined by panellists Sally Bonnar (chief operating officer, Childcare Group, Midcounties Co-operative) and Aatif Hassan (founder and chairman, Dukes Education).

The webinar was primarily focused on the key topics outlined in Christie & Co’s annual Business Outlookreport, which presents an overview of the business property market in 2020, how child-centric sectors were affected by the pandemic, and forecast market predictions for 2021. Sally and Aatif were able to share their own perspectives on operational challenges.

The event was widely attended by day nursery providers, financial services professionals and early years academics, lecturers and researchers from across the globe, including Dubai, Nigeria, Pakistan, Lagos, the UK, Malaysia and Europe. This demonstrates the event’s global reach and the relevance that its expert panel has across the world.

To read Christie & Co’s latest report, Business Outlook 2021: Review. Realign. Recover, visit: https://www.christie.com/news-resources/business-outlook/2021.

Please feel free to contact the team: Courteney Donaldson (07831 099 985/courteney.donaldson@christie.com) and Nick Brown (07764 241 316/nick.brown@christie.com).

FURTHER INFORMATION

Watch the webinar, https://www.bigmarker.com/ma-education1/Christie_Co?show_live_page=true