Early Education 5-Year Market Report | Northern Virginia

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Northern Virginia’s Child Care, School, and Daycare Market

The child care, school, and daycare line of business plays an important role in our economy. With almost 1000 licensed commercial childcare properties in Northern Virginia, they enable thousands of parents to work, earn, invest, and generate revenues.

The sector has been impacted by a series of factors. In the past two years, there have been negative impacts, but Northern Virginia’s expanding economy, the increase in population, and the number of college graduates working here are some of the positive factors. A major negative factor, of course, is the impact of the COVID-19 pandemic.

A Brief Market Overview

The number of licensed commercial child care properties in Northern Virginia totals 957. If we break that down, we see that in the five counties:

  • Arlington has 72 licensed properties.
  • Alexandria has 86.
  • Prince William has 157.
  • Loudoun has 179.
  • Fairfax has 463.

In this report we will discuss specific market trends, primarily prices paid per square foot for childcare and school real estate, cap rates, lease rates, and sold volumes during the past five years. Before that, we will check out the national picture to help focus on the innate strength of Northern Virginia’s market. Owner operators and long-term investors offering NNN leases to childcare tenants continue to see Northern Virginia as profitable.

The National Child Care Picture

The US has never had a comprehensive child care system. The pandemic highlighted many of the shortfalls in many states. According to a May 2022 article in US News, March saw that there were 117,000 fewer childcare positions available across the US than there were in February 2020. The article quoted a Child Care Aware of America survey which reported that almost 9000 childcare centers and 7,000 licensed home-based centers closed between December 2019 and March 2021.

A March article in US News listed the ten most expensive and ten least expensive states to provide childcare. Virginia was not on either list. The article did state that in Virginia, the average cost of providing childcare for a four-year-old is $10,451, which is about 9.1% of the state’s median income for a married couple. Going back to the national picture, the 2021 to 2022 Childcare Statistics and Industry Trends Report  published by HiMama stated that nationally:

  • Because of the pandemic, 42.4% of survey respondents said their net income decreased.
  • As of February 2022, 30.5% of educators earn between $20K and $30K pa. 26.7% earn between $30K and $40K.
  • Only 46.8% of childcare centers said they were fully staffed.
  • 9% of centers had at least an 80% enrollment.

Child Care Center Priorities

Asked where their priorities lay to recover from the last two years, center leaders listed the following, in order:

  1. Customer satisfaction
  2. Employee programs to retain and recruit the right people
  3. Overall cost reduction
  4. Recruiting the right new employees
  5. Increasing child enrollments
  6. Improved marketing and raising brand awareness.

As with all business models, customer satisfaction is a top priority. Retaining a customer is far more profitable than replacing one. Apart from the direct revenue income, long-standing clients generate referrals that deliver increased revenue without investing marketing dollars, which both lowers costs and increases profitability. Customer satisfaction is supported by having the right team members.

By delivering on those priorities, owner operators and childcare center tenants will stabilize and grow their businesses. The passive investor will also see profitable results from those priorities. Northern Virginia’s local economy will clearly add to the success of local center leaders who adopt these strategies.

The Northern Virginia Child Care, School, and Daycare Real Estate Market 2017 – 2022

We will now look at market stats for the past five years. As well as sales volume across Northern Virginia and in each of the five counties, we will look, specifically, at:

  • The price paid per SF.
  • Cap rates.
  • Lease rates.

Northern Virginia Overview

  • 51 properties sold, totaling 835K SF at a dollar price of $266 million. Individual sale prices ranged from $700K to $48.6 million. Annual sales, in millions, broke down to approximately, 2017: $63, 2018: $33, 2019: $47, 2020: $68, 2021: $55.
  • Price paid per SF, ranged (approximately) in each year, from 2017: $208/SF to $363, 2018: $300 to just over $400, 2019: $280 to $480, 2020: $210 to $758, 2021: $316 to $490.
  • Market sales prices rose continually during the five years from $230/SF to $295 in urban areas, and from $375/SF to $433 in suburban areas.
  • Cap rates also showed some movement. In 2017, they ranged from 6.9% to end the year at an average high of 8.03%. 2018 ended the year at 6.2%, 2019’s average high was 7.1%, 2020 dipped to 6.63%, ending the year at 7.25%, and 2021’s high was 7.5%. 94% of all sales during the five years were in the 6% to 8% cap rate range.
  • Occupancy rates for the five years hovered almost exactly at 100%, but with two dips. 2017, saw a Q4 low occupancy rate of 72% and 2021’s Q3 average occupancy rate was approximately 71%.
  • Market rent/SF rose consistently from a low in 2017’s Q1 of $26.80 to the end of 2021 with an average of $30.75/SF.
  • Market rent YOY growth showed that in 2017 it ranged between 2 – 3%, 2018’s was mainly just below 2%, but ended the year at just over that mark. 2019’s growth factor was just below 2% to just below 3%, 2020 dipped to a low of about 1.5%, but 2021’s YOY growth peaked at 5%.

Now we will take a brief look at each of the five counties.

Loudoun County

  • Total sales volume in the five years was $126 million. 23 properties were sold. The lowest transaction price was $1.1 million and the highest was $11.1 million. The average $/SF was $397, ranging from $119 to $712. The average lease rate at closing, during the five years, was 91.7%.
  • Annual sales in millions approximated to 2017: $24, 2018: $21, 2019: $30, 2020: 13, and the best year was 2021 with sales of $38 million.
  • Price paid /SF ranged (approximately) from a low in 2017 Q1 of $211 to a high in 2020’s Q4 of $545. 2021’s high was $535 in Q2, dipping to $315 at the start of Q4, ending the year at $400/SF.
  • Market sales price (MSP)/SF rose from 2017’s Q1 of $376 to 2021’s Q4 of $418. MSP plateaued in 2018 and 2019. 2020’s Q3 and 2021’s Q2 both saw slight drops, but the overall price rise was continuous.
  • Cap rate distribution in the five years saw 91% of all sales in the 6 – 8% range. The market cap rate never fell below 6.36% (2021 Q4) or went above 6.5% (2019 Q2.)
  • Occupancy rate at closing was almost always 100%. 2017’s Q3 and 4 saw vacancies of just below 4% and 2018’s Q3 saw a spike of 3%. The second half of 2020 saw an average vacancy rate of about 5%, and 2021’s Q3 spiked to10%.
  • Market rent/SF saw a continual rise, beginning in 2017’s Q1 at $26.65 and ending in 2021 at $30.20.

Fairfax County

  • Sales volume since 2017 was $88.4 million, with 13 properties being sold. The lowest sales price was $740K and the highest was $48.6 million. The average $/SF was $223, ranging from $103 to $704. The average lease rate at closing, during the five years, was 81.8%.
  • Annual sales in millions approximated to 2017: $14, 2018: $6, 2019: $10, 2020: 52.4, and 2021: $6 million.
  • Price paid /SF ranged (approximately) from a low in 2017 of $200 to a high in 2019 of $616. This fell back in 2020 Q4 to $200/SF, rising to end 2021 at $315/SF.
  • Market price/SF rose from 2017’s Q1 of fractionally below$318 to end 2021 at $375.
  • Transaction cap rate averaged 6.9% for the five years. Market cap rate hovered between 6.45% in 2017 Q1, rising slightly to 6.48% in 2019 and then ending in 2021 at 6.24%.
  • Occupancy rate at closing was almost always around 100%, but slight fluctuations and the dip in 2019 Q3 to 83% reduced the average to the 81.8% previously mentioned.
  • Market rent/SF saw a continual rise, beginning 2017’s Q1 at $29.85 and ending 2021 at $33.50.

Prince William County

  • 12 properties were sold, totaling $44.2 million. The lowest transaction price was $700K and the highest was $6 million. The average $/SF was $412, ranging from $193 to $1,465. The average lease rate at closing, during the five years, was exactly 100%.
  • Annual sales in millions approximated to 2017: $18.2, 2018: $3.7, 2019: $8.5, 2020: 4.8, and 2021 saw sales of $9 million.
  • Price paid /SF varied from $365 in 2017, down to $190 in mid-2018. The price rose continually through 2019 to peak at $755 in Q3 2020. 2021 ended with a $/SF of $245.
  • Market sales price (MSP)/SF rose continually from 2017’s Q1 of $370 to the end of 2021 at $460.
  • Cap rate averaged 7.1%. Distribution in the five years began at just below 7.2% in 2017, going down to 6.5% in Q4, then rising steadily to 7.5% when the latest figures for 2021 were available.
  • Market rent/SF saw an almost continual rise, beginning 2017’s Q1 at just below$22.90, rising steadily to plateau at $24.50 for three quarters in 2020, then rising again to end 2021 at $26.20.

Arlington County

Total sales volume from 2017 was $3.9 million. One property was sold to the County Board of Arlington, and that was 2017 Q4. The $/SF paid was $248, The property was vacant at closing.

Alexandria County

  • Total sales volume in the five years was $4 million. 2 properties were sold; one for $1.5 million and the other for $2.5 million. The average $/SF was $228. Both properties were fully occupied at closing.
  • The lower-priced property sold in 2018 Q4 and the other in Q3 2021.
  • Price paid/SF was $240 for the first property and $260 for the second.

Final Comment

Three of the five counties saw properties sell in almost every quarter of the past five years. Childcare and daycare centers and private schools are strong areas for Northern Virginia’s CRE market. Owner operators not only run successful businesses because of the growing population of well-educated and well-paid residents, but the passive long-term investor sees attractive cap rates, rising property values, and rising rental income.

SRE focuses on this niche, having sold over $68M of childcare properties since 2019. Looking back at the average $/SF across all five counties, the grand average $/SF equals $301.60. Serafin’s track record shows our sales have averaged $/SF of $410. This figure includes NNN investment sales, owner-user childcare centers, as well as vacant schools ready for refurbishing and reequipping to meet growing needs.

In addition to Serafin being recognized as the top-selling CRE firm in Loudoun County, recent achievements include selling a vacant school in South Riding for $552/SF, and the NNN sale of this Guidepost Montessori NNN property in Ashburn.

If you want to discuss your business plans, either as a seller or buyer, please leave your contact details here,  and we will get right back to you.

All statistics quoted are from Costar, SRE’s internal database, and other internet sources. Some stats have been rounded to the nearest whole or percentage number.