Callum Lancaster, business agent – childcare & education at Christie & Co, shares his insight into the day nursery market in Scotland.

Market overview

In 2024, the Scottish day nursery market continued to perform in line with the rest of the UK, following a year of uncertainty with UK elections in play, leading to a new Labour government and the impactful autumn Budget.

Following the Budget, where significant changes to Employers’ National Insurance contributions (NICs) and Capital Gains Tax (CGT) were announced, we experienced a notable surge in enquiries from early years providers across Scotland that sought to explore the potential impact of the Budget on the market and discuss implications arising enabling them to best prepare and plan for the year ahead. These changes led to an increase in owners “auditing” their businesses to properly understand the position of their business within the current market.

Buyer appetite

In the last two years, there has been a notable increase in the level of corporate activity across Scotland, with just over half of our 2024 day nursery business sales being sold to corporate buyers. As a result, in the past 12 months, the appetite to acquire day nurseries that are operated under management, with larger registered capacities, strong Care Inspectorate grades, and robust trading accounts has increased, creating competitive tension resulting in stronger multiples being achieved for both freehold and leasehold settings.

Regional nursery groups have also remained acquisitive, with circa 45% of the day nurseries we’ve sold over the last two years going to Scottish-based groups. First-time buyers continue to express interest in investing in the day nursery sector all of which created a competitive marketplace in 2024, which we fully expect to continue this year.

During the last 12 months, demand from buyers has grown, especially for settings located within the Central Belt and, increasingly, buyers are looking for ways in which they can build and grow the businesses they buy. Nurseries that already enjoy high levels of occupancy and offer further scope to grow are therefore especially attractive to regional, and corporate buyers alike.

A good example of this demand was the sale of a leasehold day nursery group, which we were instructed on last year. The 100+ place nursery, located in a prime area of Scotland, had ceased trading and was offered to buyers with vacant possession. We quickly generated three offers from well-funded eager buyers all of whom were keen to acquire the asset, set up, and reopen the nursery, and completion of the sale was achieved within eight weeks. Under the new ownership, significant financial investment was made into the setting, including a rebranding and the setting soon re-opened with feedback from the new owners that the nursery is already proving to be very successful with a rapidly growing occupancy.

Challenges

Rising employment costs are not sufficiently offset by the increases in each council’s set ‘sustainable rates’. Since 2020, the National Living Wage (NLW) has increased by circa 23% and the Real Living Wage (RLW) by circa 20% yet, on average, funding rates across Scotland have only increased by circa 12%. This illustrates the shortfall, and owners have been forced to find alternative solutions to bridge this funding gap.

Last year saw Edinburgh City Council remove cross-border funding solely for private nursery providers which goes directly against the Scottish Government’s blueprint to encourage the expansion of early learning and childcare through the Funding Follows the Child approach, as set out in 2020. As a result, some parents living outside of the city who may have previously sent their child to a private Edinburgh-based nursery are opting for council-run nurseries, impacting the occupancy rates of privately-run and independent nurseries in Edinburgh.

Expectations for the year ahead

While a number of operational and sector-related challenges may prevail in 2025, we remain positive about the Scottish day nursery market. With the next Scottish elections expected to be held in May 2026, a period of political stability will aid operators in planning for the months ahead. 

Settings that undergo year-on-year incremental improvements in financial performance will continue to attract greater buyer confidence and likewise a greater robustness in sale price.

In 2025, there will remain an abundance of demand from a wide range of buyers for well-located settings, with established earnings and for those settings that award further opportunities for business development and growth.

As illustrated by the case study herein, vacant property opportunities can garner competitive interest from multiple buyers all keen to secure opportunities to found and grow new settings, and we expect to see more demand for opportunities like this in the next 12 months.