The current global economic climate, influenced by US tariffs, presents a unique opportunity for investors in Australia’s commercial property market. With potential interest rate cuts on the horizon, the value of commercial properties, especially in the childcare sector, is set to rise. For the Australian commercial property market, particularly in sectors with strong demand like childcare, there is the potential to see significant returns and stability in a volatile global market.
With the recent imposition of US tariffs expected to have a moderate impact on the Australian economy, the Treasury predicts a slight decline in real GDP and a modest increase in inflation. However, this economic slowdown could prompt the Reserve Bank of Australia (RBA) to reduce interest rates faster than anticipated to support economic growth.
Interest rate cuts are a significant driver of commercial property values. Economists predict that the RBA may cut interest rates as early as next month, with NAB Economics revising it’s rate forecast, with expectations the RBA will ease more quickly through mid-2025, taking the cash rate to 2.6% by February 2026. Their adjusted forecast sees the RBA cutting 50bps in May, followed by 25bps in July, August, November and February 2026. Likewise, ANZ Research expects the RBA to lower the official cash rate in May, July and August, by 25 basis points at each meeting. That would see the cash rate at 3.35% come August.
Childcare centres are valued based on their net income and capitalisation rates, which are influenced by interest rates. A 1% reduction in interest rates could potentially boost property values by up to 10%, making it an attractive investment option. With the anticipated drop in the cost of debt, the domestic commercial property market stands to benefit significantly, making it cheaper to finance property acquisitions and developments. This scenario is particularly advantageous for sectors like childcare, where stable and growing demand ensures consistent income streams.
The Australian childcare industry has experienced significant growth, driven by increasing demand from working parents and population growth, which is predicted to continue. Industry revenue is projected to grow at a compound annual growth rate of 6.7% over the next five years. Both sides of government have shown strong support for the industry, with substantial investments aimed at making childcare more affordable and accessible. The federal government has committed $5 billion towards building a universal early childhood education and care system. This bipartisan support ensures a stable and growing childcare market.
The investment structure is also a significant factor, with investment trusts favoured by investors for their stability. Unlike direct property investments, the share price of investment trusts does not necessarily reflect the underlying value of the assets. This characteristic provides an additional buffer against market volatility, ensuring that the value of the investment remains relatively stable even when share markets fluctuate.
Jarra is an experienced commercial property developer and fund manager presenting wholesale investors with high-quality childcare investment opportunities that create wealth by adding value, mitigating risk and preserving capital throughout the property investment lifecycle. Click here to learn more about our current investment opportunity, Jarra Childcare Trust.
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Sources: IbisWorld, NAB Economics, ANZ Research, education.gov.au, budget.gov.au
This blog is for information purposes only and does not form financial advice or investment recommendations. Fund performance is subject to risks and target returns are indicative, based on assumptions and are not guaranteed. For more information, please refer to the individual Fund Information Memorandums. This information has been prepared without taking into account your individual circumstances, objectives, financial or taxation situation. You are advised to seek your own individual investment advice from a relevant tax and investment professional before making any investment decisions.
