Why We’re Building More ECE Centres Than We Need – or What Happens When Property Values, Not Children, Drive ECE Growth
OPINION – 6 May 2026
Andrew Phillipps
Andrew is an entrepreneur best known for co‑founding Provincial Education, which grew to become the third‑largest childcare centre group in New Zealand before selling to Busy Bees in 2021. Today, he continues to support the sector through investments in a number of early childhood centres, including a centre his young daughter attends.
I’m hearing stories of a boom in planning for and construction of new ECE centres. It’s not being driven by rising child numbers – these have been slowly falling for a decade due to lower birth rates. Instead, it is driven by 3 other factors:
- Removal of the network management policy, which had acted as a handbrake on new centre builds. From February 2023 to May 2024, providers had to show there was real community need before opening a new centre, which helped prevent oversupply. With that rule gone, new builds are increasing again.
- With residential property struggling, some sites are being re-directed toward ECE.
- The value of ECE properties continues to outpace the value of the businesses operating within them. In New Zealand, the buildings themselves are often significantly more valuable than the centres they house. Left unchecked, this dynamic risks driving the construction of more centres than the sector can sustain. Eventually, some centres will fail, some landlords won’t be paid or will need to reduce rents, and outcomes for children in large centres with financially distressed owners could be grim.
Child Numbers, Licensed Places, and Why We Need Network Management Back
In the five years to 2020, despite falling child numbers, we added an average of 161 new centres and 5,000 new places per year (net of closures). Under the previous network management approval framework, we still built around 64 centres per year, but with a small net reduction in places – more in line with declining demand.
We need to return to a network management approach that ensures new centres are built in areas that genuinely need them, and that existing centres remain well‑resourced and stable.
When ECE centres start to struggle financially – and I’ve been involved in buying more distressed centres than anyone in New Zealand over the past decade – it is never good for teachers or children.
Why ECE Leases Can Look Good to Investors but Risky to Operators
One reason investors are so keen to build ECE centres is the leases are very long term which is great for financing. Starting terms of 10-15 years with a couple of similar length rights of renewal are common. This gives centres security of tenure for 20–30 years if things go well. In many other sectors, a five‑year lease is considered long even for a property with similar total rental.
However, ECE leases can get challenging for tenants:
- Hard ratchets: The rent can never go down, despite the property getting older and therefore, in general, more difficult to operate from as other, newer, centres emerge.
- CPI adjustments: ECE funding typically increases at less than inflation, so CPI‑linked leases consume a growing share of operating costs. Leases that escalate above inflation are especially risky long‑term.
- Valuation by $/licensed place: Commercial valuers often apply a fixed rate per licensed place when setting rents. But for large centres or centres in areas where demand is low, the value of the final licensed places can be close to zero. I once operated a centre with a total of 235‑places that had never enrolled more than 190 children; those extra places were effectively worthless. The same issue affects some small towns with large floorspaces and big licenced numbers but the children to fill them don’t exist.
Ultimately, changing some of these aspects of market practice is really a commercial negotiation between tenant and landlord, but what I am seeing more often now is that landlords are increasingly having to adjust their existing leases to attract new tenants or support the ones they already have. And if a tenant leaves, there is often a considerable cost in reopening a centre because expectations for acoustic panels, acoustic fencing and other items have increased over time.
Should the sector keep growing and adding new buildings without the child numbers to support this growth, the pressure on both tenants and landlords will only intensify in a sector that is already slowly contracting.
If we keep building centres faster than we’re having children, something will break. I’ve seen what happens when centres become financially distressed, and it’s never good for children, teachers, or communities.
The sector doesn’t need more buildings; it needs the right buildings in the right places, run by operators who can invest in quality.
