Growing Investment Opportunity
London’s nursery property market continues to offer strong opportunities for commercial landlords. Demand for childcare places remains high, fuelled by changes in government support and the increasing need from working parents. For landlords, nursery premises represent a resilient sector where long-term leases and consistent tenant demand are common.
In this article, we’ll look at ways to help maximise the potential of your premise as a day nursery.
Planning and Regulatory Framework
Use Class E Classification
Nurseries fall under Use Class E (Commercial, Business and Service). This provides flexibility, as properties can move between different commercial uses within Class E without requiring new planning permission.
Change of Use Considerations
When converting premises from other categories, landlords should still confirm whether planning permission is needed. While day nurseries can often occupy former retail, office, or restaurant spaces, buildings such as churches and schools may require a change of use application, which can add time and complexity.
Compliance and Operator Requirements
Prospective tenants must register with Ofsted before opening the nursery, a process that can take several months. Operating without registration is a criminal offence, so landlords should confirm tenants have started the process early. Operators must also meet safeguarding, health and safety, and fire safety obligations.
It is important for landlords to carry out checks on a tenant’s compliance position. This includes verifying licences, registrations, and any planning permissions. Reviewing a tenant’s track record, Ofsted inspection history, and experience in running nurseries can help reduce risk.
Location and Premises Suitability
Prime Location Factors
In our experience, the most successful nurseries are usually located near residential areas with strong demand for childcare services. In central London, easy access to transport links is vital, while in outer boroughs, sufficient parking may be more important. Suitable premises include purpose-built units, converted offices, and well-located community buildings.
Outdoor Space Requirements
Access to outdoor play space is essential. Leading operators prefer dedicated external areas, and policy changes under consultation may allow more flexibility in how space is measured. Regardless, outdoor provision remains a key factor in property selection.
Building Layout and Safety
Safe access points, secure drop-off zones, and appropriate internal layouts are vital. Properties must provide rooms of suitable size for different age groups, along with adequate circulation space and natural light. Strong security measures are also essential.
Lease Structure and Terms
Typical Lease Lengths
Nursery leases often range between 5 and 25 years. Operators tend to prefer longer terms, which provide stability and justify investment in fit-outs. Longer leases can also add to the value of the property from a landlord’s perspective.
Break Clauses
Including rolling break clauses gives operators flexibility to respond to changes. These are usually subject to tenants being up to date with rent and returning the property in an agreed condition.
Repair and Maintenance
Tenant obligations should reflect both lease length and property condition. A fair approach is for tenants to return the premises in the same state as at the start of the lease, unless otherwise agreed. Responsibilities for statutory compliance must also be clearly divided.
Permitted Alterations
Leases should allow operators flexibility to make internal changes needed for child safety and operational requirements. Any major works should be agreed in writing at the outset.
Tenant Due Diligence
Before granting a lease, landlords should assess a tenant’s financial stability and operating model. Reviewing accounts, funding arrangements, and fee structures can help establish whether the tenant can sustain the business long term.
Maximising Rental Potential
Competitive Positioning
Properties with long leases, outdoor play areas, and accessible locations are more attractive to established operators. Flexibility on alterations and fit-out permissions can also increase interest.
Marketing Strategy
Working with experienced commercial agents who specialise in nurseries is more effective than relying on general agents. Experienced advisers understand operator requirements and can connect landlords with reputable tenants.
Risk Management and Insurance
All nurseries must carry public liability insurance, alongside other cover such as employers’ liability and business interruption. Landlords should confirm appropriate cover is in place and maintain fair insurance terms within the lease.
Regular inspections are recommended to monitor compliance with health, safety, and fire regulations. At lease end, consider dilapidations and any works needed to return the premises to general commercial use.
Market Outlook and Opportunities
The nursery sector has shown resilience, remaining operational even during periods of economic disruption. With continued demand for childcare in London, landlords who understand operator needs and structure leases appropriately can benefit from stable, long-term returns.
Partnering with experienced agents, conducting thorough tenant checks, and maintaining properties to required standards will help landlords succeed in this specialised but rewarding sector.
Contact our specialist team for advice and support and to discuss the use of your premise as a day nursery.