Ask ten childcare operators what their rent is and most will give you a monthly figure. Ask them what their rent is per licensed place, what percentage of gross revenue their total occupancy cost represents, or what their rent will be in year eight of the lease, and the room goes quiet. That gap is where a lot of otherwise good centres get into trouble.

The lease is the single document that most directly determines whether a centre is viable, whether it can be sold, and what a buyer will pay for it. It is also the document operators most often sign without fully costing. This guide walks through the numbers that matter in an Australian childcare lease in 2026, the clauses that quietly erode margin, and the levers you actually have when negotiating.

Why a childcare lease is not a normal commercial lease

A standard office or retail lease runs five years with an option or two. Childcare leases run much longer, and for good reason. A purpose-built childcare fit-out, including outdoor play areas, commercial kitchen, fencing, soft-fall, nappy change and bathroom facilities, typically costs between $500,000 and $2 million depending on size and condition, according to ChildcareLink. No operator can recover that on a short term.

There is a second reason. Under the National Quality Framework, your service approval is tied to a specific address. Lose the premises and you do not just lose a building; you lose the approval, the enrolments, the staff and the reputation attached to it. LegalVision makes the same point: relocation for a childcare business is not just expensive, it is often fatal, because the customer base is anchored to the location.

That is why CBRE's March 2026 Early Education report describes the typical childcare lease as a net lease with CPI-plus or fixed escalation and a weighted average lease expiry of 15 to 20 years plus 10+10 options. That structure is exactly what makes childcare property attractive to investors. It is also what makes the numbers you sign up to so consequential.

Rent per place: the benchmark that matters

Childcare rent is benchmarked per licensed place, not per square metre. Take the annual rent and divide it by the number of approved places. That is the number you compare against the market and the number a valuer or buyer will look at first.

CBRE's 2026 report puts typical rents at roughly $4,500 per place per year in metropolitan areas, $4,000 in commuter belts, and $3,000 to $3,500 in regional locations. ChildcareLink's transaction data gives a slightly wider metro range of $2,500 to $4,000-plus depending on centre quality and location. Inner-city Sydney and Melbourne sit above these figures; regional Queensland and South Australia sit below.

Two cautions. First, per-place rent is only useful if you know whether the figure is gross or net. A $3,200 per place gross lease and a $2,500 per place net lease with $700 in outgoings cost you almost the same. Second, the benchmark tells you what the market charges. It does not tell you what your centre can afford, which brings us to the number that actually decides viability.

The 15% rule: occupancy cost as a share of revenue

Total occupancy cost is rent plus all outgoings you are responsible for under the lease: council and water rates, land tax if passed through, building insurance, body corporate levies and maintenance contributions. Divide that by gross revenue and you have the ratio that lenders, valuers and experienced operators watch most closely.

The industry range is consistent across sources. ChildcareLink puts the comfortable operating band at 8% to 15% of gross revenue and warns that anything above 15% starts to compress margins. CBRE's own analysis lands at 7% to 17%, and it notes that the ATO's benchmark for the sector sits at 8% to 20%. The message is the same: once occupancy cost passes the mid-teens, the business model starts to strain.

Why does this matter so much in 2026? Because occupancy cost is fixed and revenue is not. National centre-based occupancy has softened from the low 80s to the mid-70s as new supply has outpaced enrolment growth, and CBRE estimates around 30,000 new places came online each year across 2024 and 2025, concentrated in the metro growth corridors of Melbourne, Sydney, Brisbane and Perth. A centre that signed a lease at 12% of revenue on 88% occupancy is now sitting at 15% or higher on 72% occupancy without a single clause changing. The lease did not get worse. The denominator got smaller.

ELM's feasibility calculator is built around exactly this relationship. Model rent per place against realistic occupancy, not the occupancy you hope for, and the 15% line becomes very easy to see.

Rent reviews: model the whole term, not year one

Most childcare leases have annual reviews using one of three mechanisms. Fixed increases, typically 3% or 4% a year. CPI-linked increases, sometimes written as "CPI or 3%, whichever is greater," which protects the landlord's floor. And market reviews, usually every five years, where rent resets to an independent valuation.

The trap is that a comfortable starting rent compounds. ChildcareLink gives the arithmetic: a lease starting at $3,000 per place with 4% fixed annual increases reaches $4,440 per place within ten years, a rise of almost 50%. If your fees have not grown at the same rate, and fee growth in a softening market is far from guaranteed, the lease slowly eats the margin.

Before signing or renewing, model rent in year five, year ten and year fifteen against a conservative revenue forecast. Ask whether the lease has a ratchet clause preventing a downward market review. Ask whether a market review can be triggered by either party or only the landlord. These are negotiable, and they are worth far more than a few thousand dollars off the starting rent.

Term and options: why 10+10+10 is the standard

The most common structure is a 10-year initial term with two 10-year options, giving 30 years of potential tenure. Newer developments increasingly offer 15+10+10 or longer for strong operators. The logic is simple: the longer the secure tenure, the more time you have to recover fit-out, build occupancy and create a business that is worth something.

Term also drives sale value. When you go to market, remaining lease term is one of the top three things a buyer's adviser pulls apart, alongside occupancy and EBITDA. ChildcareLink describes the sharpest pricing tension occurring when a lease has three to seven years remaining and no further options: the operator is anxious, the landlord holds the power, and buyers cannot underwrite the income. The Sector's analysis of the 2026 Queensland sale market makes the same observation from the buyer's side: lease renegotiation or landlord cooperation is often critical to allow a transaction to proceed at all.

If you are more than five years into a 10-year term with no options exercised, the time to talk to your landlord is now, not when a broker asks for the lease.

Incentives: what you can actually ask for

Landlords want long-term childcare tenants. That gives you more leverage than most operators use. Common incentives include:

  • Rent-free periods to cover the fit-out and licensing window before the first child enrols, which can run six to twelve months on a new build.
  • Landlord fit-out contributions, either as a cash contribution or by the landlord delivering a warm shell to an agreed specification.
  • Early access for fit-out works before the lease commencement date, so rent does not start while the builders are still on site.
  • Stepped rent in the first two or three years while occupancy ramps, in exchange for a longer term or a higher rent later.

LegalVision's guidance is to negotiate early access or a rent-free period for fit-out as a matter of course. On an existing centre, the equivalent conversation is about make-good and capital works: who pays for the roof, the air conditioning replacement and the playground resurfacing that will inevitably come up over a 20-year tenure.

The clauses that quietly cost money

Make-good. A standard make-good clause requires you to return the premises to original condition at the end of the lease. For a childcare fit-out that can mean stripping out $200,000 to $500,000 of fixed play equipment, fencing, soft-fall and specialist bathrooms to hand back a bare shell the landlord does not actually want, because the next tenant will need the same fit-out. Negotiate make-good down to "clean and in good repair" or exclude the childcare-specific works entirely.

Assignment. If you ever want to sell, the buyer needs to take over the lease. The standard wording is "consent not to be unreasonably withheld." Anything tighter than that reduces the pool of buyers and the price they will pay.

Permitted use. Make sure the permitted use is broad enough to cover long day care, preschool programs, and any future service model. A lease that only permits "child care centre" can create friction if you want to add a kindergarten program or change your operating hours.

Outgoings. Get the full list in writing. LegalVision lists the usual suspects: council and water rates, body corporate levies, maintenance, security, cleaning and administration. Ask for the landlord's estimate of annual outgoings before signing, and ask whether land tax is passed through. In some states it cannot be for retail leases, but whether a childcare lease falls under retail leasing legislation varies, so get specific advice.

Ten questions before you sign or renew

  1. What is rent per licensed place, and is that gross or net?
  2. What is total occupancy cost as a percentage of realistic gross revenue, and is it under 15%?
  3. What does rent look like in year five, ten and fifteen under the review mechanism?
  4. Is there a ratchet clause? Can market reviews go down as well as up?
  5. How many years of secure tenure remain, including unexercised options?
  6. Exactly which outgoings am I responsible for, and what is the landlord's estimate?
  7. What are the make-good obligations, and are childcare-specific works excluded?
  8. Can the lease be assigned to a buyer, and on what conditions?
  9. Who is responsible for structural repairs and major capital items?
  10. Is the permitted use broad enough for where the service might go in ten years?

Where ELM fits

The lease is one of the six factors we walk through in how to value your childcare centre, and it is the one operators most often cannot answer from memory. A lease review is part of every ELM Discovery Package, whether you are assessing a site before you commit, buying an existing centre, or trying to understand why a centre that looks busy is not making money.

If your centre is sitting above the 15% line, or you have a renewal or market review coming up in the next two years, it is worth having that conversation before the landlord does. Book a Discovery Call and we will go through the lease with you.

References

  • CBRE Research, Child Care Centres: Early Education Report, March 2026. burgessrawson.com.au
  • ChildcareLink, Childcare Centre Lease Explained: Key Terms Every Operator and Landlord Must Know, March 2026. childcarelink.com.au
  • LegalVision, 7 Tips for Leasing a Childcare Centre, updated September 2024. legalvision.com.au
  • The Sector, The 2026 Queensland childcare centre sale landscape, 2026. thesector.com.au
  • The Sector, New Supply and Softer Occupancy Reshape Childcare Markets, 2026. thesector.com.au
  • ACECQA, National Quality Framework. acecqa.gov.au

This article is general information only and does not constitute legal or financial advice. Lease terms and the application of retail leasing legislation vary by state. Seek independent legal advice before signing or renewing a lease.