The niche real estate sector that attracts a lot of money for the care of small children

Rising parental demand for early childhood education is fueling a boom in a small but fast-growing subsector of commercial real estate. There is so little supply in the sector that it is becoming increasingly attractive to developers and investors alike.

The U.S. child care market is currently valued at $65.2 billion and is expected to grow to $109.9 billion by 2033, according to a report from CRE brokerage B+E, based on data from Grand View Research. The increase is driven by the return to office of parents, advances in educational technologies and increased government funding – especially for single and working mothers.

And real estate is a big part of the story.

According to B+E, which specializes in net leasing, the number of early childhood education properties available for sale has grown by 14% since the end of 2024 to a total of 158. While some operators own their facilities, a significant number of centres, especially large national chains, benefit from them KinderCare and The Learning Experience utilize net lease structures, where tenants are responsible for property costs such as taxes, insurance and maintenance

According to B+E, the number of available properties with a remaining lease term of more than ten years will increase by 12% by 2025.

“This is the stuff that banks like to lend to,” says Camille Renshaw, CEO of B+E. “It shows that the vast majority of things coming to market are developers finally getting a new tenant. That’s coming to the market for investors and it’s very exciting.”

During the pandemic, many families have moved to more rural areas, where there are fewer childcare facilities. Developers want to take advantage of these so-called childcare deserts.

Fortec, a national developer specializing in early childhood education projects, has just announced a partnership with Equiturn, a global financial advisory firm, to launch a $100 million early childhood education real estate fund.

“The first thing we want to do with this fund is to industrialize this sector,” said Pablo Barreiro, chairman of Fortec. “A lot of people are investing in triple net [a type of net lease]In a lot of real estate they have never heard of this sector, and it is a very good sector because you have very good tenants with good credit.”

Moreover, there is a fundamental supply gap. Of the 14.7 million U.S. children under the age of six who require daily care, only 8.7 million are currently in formal programs, leaving a shortfall of 6 million children, according to U.S. Census Bureau data. Waiting lists to enroll a child average six months, and according to the data, 13% of families wait a year or more. Even partial catch-up would substantially increase demand in centres, despite modest population decline in the under-six cohort expected until 2030.

“Fifty-one percent of areas in America are what is called a childcare desert. A childcare desert basically means that [there] is three times the demand for each available supply slot,” Barreiro said.

Until now, K-12 real estate has largely been a fragmented, local affair, similar to single-family rental properties. There are REITs that own some early childhood education properties, but child care typically makes up a very small portion of their total holdings. The category has yet to be defined as its own asset class and needs to be scaled.

This is very similar to the situation in senior housing or medical offices before they were recognized as institutional real estate sectors, according to Fortec, which aims to legitimize the subsector with its new fund.

Fortec has completed more than $230 million in transactions in 13 states over the past five years, and this fund expands that footprint. Equiturn is a leader in fundraising and reaching investors.

Investor interest in early childhood has previously been strongest in single-family and multi-family offices, indicating their economic resilience. A recent release from Aceana Group, a Florida-based single-family agency, highlights the industry’s continued demand and strong unit economics, as well as the increasing recognition of childcare as essential infrastructure rather than a discretionary service.

“Larger centers typically generate millions of dollars in annual revenue, with double-digit profit margins once occupancy rates stabilize,” the Aceana note said. “Most operators lease their facilities under long-term, triple-net agreements with built-in annual escalations, which shift costs to the tenant and provide landlords with bond-like revenue streams.”

This provides protection against inflation, making them particularly attractive in the current environment. Institutional investors are starting to take notice.

“Many large institutions are investing in the operational side of early childhood education,” says Barreiro. “I’m seeing some of these big institutions starting to look at this now, but if they want to invest, we need to create a product that also fits the numbers they’re looking at and also the risk they’re looking at.”