Market Rents and Valuation: Bringing Clarity to a Specialized Asset Class

Childcare real estate cannot be valued the same way as traditional office, retail, or industrial property. The economics of a childcare center are driven by enrollment, tuition rates, and licensing capacity — not just square footage or location. At The OFF MKT, we’ve built a valuation model that translates operational performance into clear, defensible real estate metrics.

A Business First Approach to Rent Evaluation: Traditional rent comparisons often fail when applied to licensed childcare centers. Two facilities may be the same size but operate under very different economic realities. One might serve 60 children with an average tuition of $1,400 per month, while another serves 120 children at $1,800 per month. The rent each can support is vastly different, even if the buildings are identical.

The OFF MKT analyzes market rents by reverse-engineering affordability from tuition and licensed capacity. We calculate total potential gross income based on local tuition averages and enrollment potential, then apply a rent-to-revenue ratio that reflects what a healthy, sustainable business can support.

The Rent-to-Revenue Framework: Across most markets, well-performing childcare operators allocate 10 to 15 percent of total gross income toward rent. In higher-cost urban markets where land and buildout costs are greater, rent may reach 16 to 18 percent of gross income, provided tuition rates support it. In suburban and secondary markets, sustainable ratios often fall closer to 10 to 12 percent.

As an example, a center with 100 licensed children charging an average tuition of $1,600 per month generates $1.92 million in potential annual revenue. Applying a 12 percent rent-to-revenue ratio suggests an annual rent capacity of roughly $230,000, or about $19,000 per month. That translates to approximately $25 to $30 per square foot in most suburban locations, depending on size and efficiency.

Regional Variability and Tuition Sensitivity: Market conditions drive tuition rates, which in turn dictate rent tolerance. West Coast markets such as Seattle, San Francisco, and Los Angeles often sustain higher rents due to strong household incomes and limited supply. By contrast, markets in the Midwest or South may have lower tuition rates, requiring landlords to keep rents more moderate to maintain operator profitability.

To provide continuity, The OFF MKT maps these ratios regionally and publishes benchmark ranges that help investors, lenders, and appraisers calibrate expectations. This allows underwriting to move away from guesswork and toward data-based consistency.

Translating Tuition into Real Estate Metrics: By converting tuition and licensing data into predictable revenue bands, The OFF MKT can model rent thresholds that support both operator success and landlord returns. For institutional buyers, this creates a standardized approach to underwriting childcare properties, similar to how multifamily and healthcare assets are modeled. For operators, it creates transparency and a path toward lease structures that are realistic, sustainable, and transferable.

Valuation Through Context, Not Comparison: Childcare properties rarely have direct comparables. Cap rates and price per square foot from traditional commercial property sectors miss the nuances of regulation, staffing, and utilization. The OFF MKT’s

approach standardizes inputs — license capacity, average tuition, and occupancy ratios — to create an apples-to-apples comparison across facilities and regions.

By grounding valuation in operational performance, we help bridge the gap between childcare as a business and childcare as a real estate investment. It’s an approach that makes this asset class more transparent, more consistent, and more investable.

Childcare real estate is not simply a repurposed office or retail use. It’s a specialized, regulated, and essential segment of the market. The OFF MKT’s mission is to define it clearly, measure it accurately, and help every participant — from operators to investors — understand its true value.