The annual survey of the nursery market by Laing and Buisson says the UK nursery sector is now worth 3.5 billion, growing by just over 5 per cent last year.
The report's author, economist Philip Blackburn, said he felt more optimistic about the market than a year ago. Falling occupancy had levelled off, he said, and there was 'an expectation that demand won't fall'.
Average occupancy for nurseries was 77.5 per cent in January this year, with occupancy in Government initiative nurseries - Neighbourhood Nurseries, Sure Start, children's centres and extended schools - slightly lower at 75.5 per cent.
Mr Blackburn said that there was plenty of investment interest in day nurseries. 'The entrance of ABC into the UK market heralds a degree of confidence into the sector. What ABC wants to do is adopt the Australian and American model over here. That's got everyone very excited.'
He added, 'I think a lot of private equity companies have extended their stay beyond the normal cycle of five years and will be looking for an exit.'
He also predicted that nursery chains that wanted to expand would be buying up medium-sized companies, with anything from three to ten settings.
As part of its research Laing & Buisson found that nurseries receive an average of 7.92 in the nursery education grant for delivering a two-and-a-half hour session. Mr Blackburn said that there was no real north/south divide in the level of funding that settings received, and areas that traditionally have a high cost of living such as Greater London and the south received only a few pence more than some Northern and Midland regions.
'Childcare costs vary regionally but funding doesn't appear to,' said Mr Blackburn.
However, the National Day Nurseries Association has calculated that the minimum guaranteed level of funding should be 9.58 per session, based on the guaranteed amount of unit funding for each local authority in the 2006-07 Dedicated Schools Grant.
The NDNA said the report's findings on Nursery Education Grant rates reflected feedback it had from its members.
Chief executive Purnima Tanuku said, 'These figures make worrying reading, especially in reflection of the other trends the report highlights, such as vacant places in three-quarters of nurseries, an average occupancy rate of 77.5 per cent, and the reliance upon parents as the main source of income.
Direct investment and increased funding for the free entitlement are essential if we are to ensure the day nursery remains sustainable and affordable to parents.'
Children's Nurseries - UK Market Report 2007 costs 540 from www.laingandbuisson.co.uk.
Commenting on the current DfES consultation on early years funding, he said he expected the Government would come up with a funding model for local authorities.
FUNDING BY AREA PER 2.5 HOUR SESSION
* Average UK funding: 7.92
* Northern Home Counties: 8.15
* East Midlands: 8.14
* Southern Home Counties: 9.07
* South West: 8.05
* Yorkshire and the Humber: 8.00
* The North: 7.97
* East of England: 7.94
* Greater London: 7.93
* North West: 7.88
* West Midlands: 7.66 Children's Nurseries - UK Market Report 2007 by Laing and Buisson
