Cap rates tell the story of how the market prices childcare risk. Here's how they've moved — and what's driving them now.
The recent arc
Cap rates compressed when capital was cheap, then drifted up as interest rates rose through 2023–2025. By mid-2025 the average single-tenant net-lease (STNL) cap rate had settled around 6.9% — having risen for roughly ten straight quarters and sitting about 130 basis points above the market's late-2022 low, but only a few basis points higher quarter-over-quarter. The era of violent repricing gave way to a plateau. For context, our own Year-End 2024 report had pegged the average childcare comp near a 6.6% cap rate, about $376 per square foot, and roughly a $3.6 million average sale price — with time-to-sale stretching to about 7.2 months, up from a three-month low back in 2022 as higher rates bit.
Childcare, importantly, sits tighter than the STNL average when quality is high: newer centers on 15-year NNN leases with strong occupancy have traded around 5.5–6.5% in strong markets, with record pricing for institutional-grade assets in 2024–2025. Pricing held even as overall STNL volume slumped to roughly $9.6 billion in Q2 2025 — one of the lowest quarterly totals in over a decade — proof that scarcity and essential-service demand were supporting value.
What moves them
Three asset-level factors dominate: tenant credit quality, remaining lease term, and rent coverage. Macro factors — interest rates and capital availability — set the backdrop, but the spread between strong and weak assets is wide. The market is sharply bifurcated: investment-grade, long-lease assets keep attracting institutional and 1031 capital, while short-term or non-rated assets face wider spreads and pickier buyers.
For perspective on credit tiering, the tightest net-lease tenants — McDonald's (~4.3–4.6%), Chick-fil-A (~4.2–4.5%) — trade far below weaker-credit drugstores and dollar stores (Walgreens ~6.4–9.0%, Dollar General ~6.75–8.5%). Quality childcare lands in the appealing middle: essential demand, often corporate-guaranteed, at yields above trophy QSR.
Where they're headed
With dedicated capital forming and quality supply scarce, well-located, well-leased assets should continue to command firm pricing. Marginal assets face more scrutiny.
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