Even before the COVID-19 pandemic which thrust the issue of childcare to the forefront of German politicians’ focus, along with families’ attempts to come to grips with the lockdown realities of juggling vital family and work needs, interest had been growing in the field of professional childcare as an area in need of more private investment.
Demand for professional childcare has long exceeded supply in Germany, despite major strides in the last ten years in providing guarantees of places in certain cities and states, with mixed results.
Among those who are trying to quantify the market are Cushman & Wakefield, who have produced a recent report on the sector and look at the niche asset as an up-and-coming investment product. The authors Simon Jeschioro, Head of Investment Advisory, and Jan-Bastian Knod, Associate Investment Advisory, also provide insights into day care and the socio-demographic market environment.
The basis for the strong demand for daycare facilities is the changing living situation in Germany. In recent years, the number of working women in particular has multiplied. In addition, employed women return to work earlier on average after the birth of a child. The trend towards one- and two-person households also leads to a dependency on third parties for childcare. In addition, the birth rate in Germany has risen significantly over the past ten years, with a level of 1.57 births per woman. As a result of these factors, the demand for daycare places for children up to 3 years of age as well as for children between 3 and 6 years of age has increased significantly in recent years.
Germany currently invests 0.6 percent of GDP in childcare, putting it squarely in the middle of the European average. Thanks to high government investment, more childcare places have already been created. From 46,600 facilities in 1994, the market has grown by 22% to 56,700 facilities by 2019.
The number of children aged between 0 and 6 years in daycare rose by 27% between 2006 and 2019, with the childcare rate rising to 93% by the end of 2019. However, a study by the Cologne-based Institut der deutschen Wirtschaft (Institute of the German Economy) suggests that there will still be an estimated 300,000 daycare places for under 3-year-olds in Germany in 2018. The childcare rate is correspondingly lower here - at 52.1% in the new federal states and only 30.3% in the old west Germany. Since 1st August 2013, children have had a legal entitlement to early childhood care from the first year of life.
In Germany, care is organised by both public and private organisations. Freelance day care centres have been increasing steadily in recent years, while public institutions have recorded a decline. Given the long-term nature of social care planning, general lease agreements are normally for a term of 20 to 30 years between the operating company and the property owner. The term, as well as the nature of the operator, as a rule guarantee a relatively secure cash flow for the property owner, because the municipal or federal supply obligation entails a relatively low risk of default. The cooperation between cities or municipalities and real estate investors also contributes to the risk-return profile being attractive for investments.
Elsewhere in this REFIRE issue we look at further initiatives in the field of investing in German social property in our interview with Belgreen Capital, and we will be returning frequently to this emerging asset class.
