Nurseries' resilience 'wearing increasingly thin' warns Christie & Co in business outlook for 2024

The company saw a 27 per cent decrease in the number of day nurseries sold in 2023, compared with 2022.

However, Christie & Co said it remains ‘cautiously optimistic’ about the continued demand for high-quality settings across the country.

Its Business Outlook 2024 report reflects on the themes, activity and challenges of 2023 and forecasts what 2024 might bring for the day nurseries sector.

While the demand for high-quality nursery settings nationwide, from single assets to larger groups, remained strong in 2023, Christie & Co said there is little doubt some of the challenges connected to the sector and the wider economy have impacted the market.

‘Historically, the UK day nursery sector has been resilient, and while the market for high-quality businesses with established earnings remains robust amid a wide range of challenges, this resilience demonstrated by many providers, especially those of single settings, feels as though it is wearing increasingly thin,’ it states.

‘Day nurseries have proven tough during economic downturns, ultimately fuelled by working parents’ requirement for childcare. However, smaller settings are increasingly struggling, with many owners not even able to draw a wage, leading to an increase in closures and a loss of capacity and places.’

Workforce-related challenges continued and, in some cases, stifled providers’ ability to operate at optimum levels, or to grow their businesses and expand capacity, despite the Government’s childcare expansion plans for the 30 hours.

Christie & Co highlights that without consultation with nurseries, concerns from providers around the ability to create capacity and increase staffing to meet these plans grew during the year.

It said, 'This was coupled with concerns over the lack of visibility for funding forecasts and funding rates not being linked to inflation, which would enable providers to forward-plan from a fiscal sustainability perspective.’

Nurseries need to attract more staff and this proved to be increasingly difficult for many throughout 2023, as wages and costs continued to rise. 

In numbers

During 2023, Christie & Co brought 236 day nurseries to the market, which it said was a mix of single settings and groups.

Key findings include: 

• A 27 per cent decrease in the number of day nurseries sold in 2023, compared with 2022, with the average size being 72 places, compared with 67 places in 2022.
• 44 per cent of Christie & Co’s 2023 deals were to corporate/large groups, a 16 per cent reduction on 2022 figures.
• 32 per cent of deals were to independent buyers, a 20 per cent increase on 2022 figures.

Christie & Co also identifies other economic pressures, operational challenges, sector funding, and sustainability as key themes influencing the sector. 

Courteney Donaldson, managing director for childcare and education at Christie & Co speaking to Purnima Tanuku, chief executive of the National Day Nurseries Association for the Business Outlook 2024 report, screen grab from Christie & Co 

In a video interview released to coincide with the report launch, Courteney Donaldson, managing director for childcare and education at Christie & Co spoke to Purnima Tanuku, chief executive of the National Day Nurseries Association, about the challenges facing the sector.

She said, ‘It’s worrying to see the loss of capacity’ in the early years sector as the Government are expanding the 30 hours.

Donaldson added, ‘We helped YMCA. YMCA announced a number of nursery closures, the nurseries they operated just weren’t not sustainable for them. But very fortunately we were able to intervene ahead of that formal closure process. We were able to find a number of buyers that could take those nurseries on and maintain capacity. Because one of the biggest concerns during the forthcoming year, as we look ahead, is that loss of capacity. It’s the balance of parents’ expectations looking for childcare and that availability of supply.’

Tanuku said, ‘Even if providers want to expand they haven’t got the staff. They were struggling before and the expectations from parents is they are going to get a place near where they are working and living and some parents may be disappointed because there won’t be enough places.’

A survey by NDNA last year found 50 per cent more closures in 2023 than 2022, and many of these closures were in deprived areas, which Tanuku said had had the biggest impact on families being able to access education and care.

She said the Government’s workforce campaign, which it is expected to start soon, ‘should have happened four years ago’, highlighting a turnover rate of 24-26 per cent of staff in the nursery sector, compared to 18 per cent in other sectors. ‘That should have been looked at years in advance,’ she said.

In the interview Donaldson said, ‘One of our fears for the year ahead is that we will see more nurseries turn off their lights and close their doors for the final time unless there is direct action and positive momentum on workforce strategies, on raising the profile of the early years workforce, on funding, and on overall support for the sector.’

Tanuku responded, ‘Everybody is saying already that in the general election early years and childcare will be the vote winner, and parents know exactly what they want, so that’s going to be a decider in the general election. All parties have to listen, there is absolutely no other way, and listen to what the sector is saying and organisations like us are saying, and put children at the heart of the conversation.’

‘The finance landscape’

In an anonymous survey by Christie & Co of education and childcare professionals to gauge their sentiments about the year ahead, 44 per cent were positive, 42 per cent were neutral, and 14 per cent were negative.

Asked about their sale and acquisition plans 48 per cent said they were looking to buy, 15 per cent looking to sell, 8 per cent buy and sell and 29 per cent neither buy or sell.

Christie & Co said that, ‘Whilst the sector remains favoured in the lending world, there is an increased reliance on the quality of operators as this is a critical measure against the level of service provided to the children. Alongside traditional high street lenders, there has been a surge in the appetite of specialised lenders – such as challenger banks and private equity firms – willing to support the childcare and education sectors.’

They added, ‘In 2023, there was a 26 per cent increase in the number of childcare and education finance instructions, with a significant increase in leasehold operators seeking funding to purchase the freehold premises, ultimately increasing the value of the business that can be utilised as a springboard to aid future expansion.’

Nick Brown, director and head of brokerage for childcare and education at Christie & Co, said, ‘The sentiment at the start of 2023 was that the year was going to be challenging, which indeed it was, but the market moved forward despite this. Key challenges are sure to continue throughout the sector this year, but there is definitely a more optimistic feeling around the 2024 market as we begin the year as we are already witnessing a healthy appetite and demand for high-quality assets across the country which has resulted in a strong pipeline of deals agreed already for the first quarter of 2024 and beyond.’