In 2023, the cost-of-living crisis undoubtedly impacted many businesses and families across the UK. Despite this, the early years sector has remained buoyant, with day nursery transactions increasing by 20%1.
Although 80% of day nurseries2 are independently owned, the larger groups such as Bright Horizons, Busy Bees and Kids Planet are continuing to dominate the market. Whilst some key groups in the sector continue on their growth trajectory, others are slowing down to focus on the performance of existing operations following financial and operational difficulties. OFSTED has recognised the recruitment and retention challenges faced by the early years sector and the impact this has not just on business sustainability but also the quality of the childcare provided.
The rise in construction costs, interest rates and inflation have led to increased start-up costs for new businesses, resulting in a more risk-averse market where property investors and agents are having to be more creative to find mutually beneficial deals. In a recent survey, 99% of respondents agreed the government is not supplying sufficient financial backing to early years educational settings3. The Department of Education continues to review the challenges within the sector and are beginning to make suitable changes to the Early Years Statutory Framework which promotes change with staff qualifications and training requirements. This will hope to alleviate pressure for operators to adequately staff their business without compromising quality – in turn, this will have a direct impact on the sustainability of early years businesses. Similarly, changes to early years funding is expected to increase demand for childcare, meaning operators in the sector are gearing up to be able to meet the needs of local parents and carers.
“The early years sector has shown resilience in the face of economic headwinds in 2023. While we saw some cooling in demand for new sites, overall the sector held up better than expected. Higher interest rates and cost inflation have led some larger operators to be more cautious with their growth plans, however, robust pipelines point to optimism for 2024 and beyond,”
James Adebayo, commercial real estate specialist and the Director at TA Property.
What does this mean for MP?
Monkey Puzzle has a robust due diligence process in place for assessing new opportunities, including property identification, building and planning feasibility checks, demographic analysis and cashflow forecasting. By ensuring the location and building are best suited to provide high-quality care for children and parents/caregivers, franchisees have the best chance of success.
The head office team use data provided by their network of franchisees to regularly update cashflow forecasts to include the most accurate figures on rising costs such as utilities. Ensuring that budgets are accurate and continually monitored throughout a project is a key part of our success in opening new sites organically.
We work alongside business partners such as banks, agents and surveyors to support franchisees with reducing costs such as interest rates, construction costs and business rates. As the leading franchisor in the sector, Monkey Puzzle has strong partnerships with key suppliers and can connect franchisees with useful contacts to benefit their business.
Dan Goodman is the Director (Head of Developments) at Harkalm. The property investment group works with us to secure new sites and operates as our landlord at several of our Monkey Puzzle Day Nurseries.
“The Early Years property market is increasingly congested with occupiers being more selective and focusing on quality locations and buildings with capex an important consideration. The Harkalm Group have remained very active in the sector and will continue to partner with Monkey Puzzle in the coming years,” said Dan.
What’s next?
In 2023, we supported both existing and pipeline franchisees to successfully launch six new franchised sites in areas across the United Kingdom. The head office team also worked alongside franchisees to complete on multiple internal business re-sales.
With new property opportunities being assessed weekly, we currently have a strong pipeline of projected openings in 2024 in locations such as Surrey, Berkshire and Central London.
1 Childcare & Education Mid-year Report, Christie & Co, July 2023
2 Children’s Day Nursery Spotlight, Savills, Autumn 2023
3 Cost-of-living Crisis, Early Years Alliance, 2023.
