As the sector continues to consolidate, we delve into the move towards fully leasehold estates for group operators
Over the last twelve months, there has been continued consolidation across the day nursery market, with mergers and acquisitions of quality settings being a key theme for group operators. Despite the market still being largely made up of independent operators, Busy Bees and Bright Horizons remain the largest ‘super’ group by the number of places and settings.
Kids Planet keeps its spot as the third-largest operator. Its acquisition of eight Perfect Start Nurseries across Surrey, West Sussex, and Kent in March 2025 took the group to 233 settings and gave it coverage in a new geographical market.
Kids Planet is closing the gap with Bright Horizons, which has continued to reduce its number of settings year-on-year. Its rapid growth has landed it Experian’s most active business in the mergers and acquisitions market in the North West in 2024. If this pattern of growth and retraction continues, we may see a change in the top two operators in the 2026 list for the first time in over ten years.
While the top ten largest operators continue to dominate the Nursery World League charts, the mid-tier groups with 10–20 settings have expanded their numbers with an emphasis on organic growth and strong brand connotations. In January 2025, Kinderzimmer — a group of nine nurseries in London and the South East — secured investment backing from Tibeca21, enabling the group to continue to expand organically with new settings in the pipeline. Fennies, with 20 sites, also secured a £45 million investment from Mantra Capital, which will support the opening of ten new settings between 2025 and 2026 across the south of England.
Looking ahead, headwinds continue to challenge the sector, and adaptability will be paramount in withstanding changes to continue advancing the provision of early-years education. However, continued acquisition and investment activity suggests good liquidity in the market, driving further growth and consolidation.
Leasehold Nurseries Drive Regional Growth
Leasehold settings provide operators with growth opportunities, without too much capital being locked away within property assets, supporting expansion plans. We anticipate this trend continuing in the coming years.
In 2024, Savills analysis revealed that 80% of nursery settings owned by the largest ten groups were held on a leasehold basis. This analysis has now been expanded to include the largest 30 groups, with a breakdown by region.
Across these 30 groups, 71% of nursery settings are held leasehold, with nine groups operating entirely leasehold estates.
Wales and the North have the highest proportion of freehold group-owned settings. In contrast, London and the South East continue to dominate the leasehold model in terms of number of settings, with 77% of settings held leasehold, which is reflective of higher property values.
Ownership data shows that 65% of all major group settings are located in London, the South East, and the North West, whilst the North East accounts for less than 2% of group-owned settings.
London, the South East, and the North West command the highest rents and capital values per square foot, and they also benefit from higher government-funded hourly rates.
Over the past five years, there has been a significant increase in rents in London and the South East, with starting rents rising by 47% on a £ per square foot basis. The most substantial growth occurred between 2023 and 2024, with an 18% increase, likely driven by heightened demand following the spring 2023 mini-budget announcement on the expansion of funded childcare.
Operational trends
In the spring 2023 mini-budget, the government announced the expansion of funded childcare places. This has been a phased expansion programme, with the final phase introduced in September 2025. As of September, eligible working parents of children aged nine months and over receive 30 hours of funded childcare per week during term time. 1.7 million children across all age categories were registered to receive government funding, an increase of 34% from the previous funding regime. It is estimated that seven in ten eligible children aged nine months to two years are registered to receive the funding, while nine in ten eligible three- and four-year-olds are registered.
September 2025 data show that around 525,000 codes were validated in the summer 2025 term, with an additional 5,000 codes currently validated for the autumn term for children aged nine months to two years. For autumn 2025, the highest proportion of validated codes was for two-year-olds at 52.3%, followed by one-year-olds at 40.8%, and nine- to twelve-month-olds at 6.8%. The proportion of codes by age category remained broadly consistent between the spring and autumn terms.
As a result of the expansion of funded places, one of the ten largest operators anticipates around 65% of all income generated in its nursery portfolio to be local authority-funded from September 2025, up from approximately 40% previously.
With the increase in funded places being rolled out across England, the cost of childcare for parents has fallen for the first time in 15 years, according to the Coram Childcare Survey 2025. A part-time, term-time nursery place in England (25 hours per week with ten hours privately funded) is approximately 55% cheaper than in 2024. However, childcare costs have continued to rise for families in Scotland and Wales, with Wales experiencing the largest increase at 9.7%.
That said, with the recent increases in employer National Insurance contributions (NICs) and the National Living Wage, operators are reporting a need to increase private fees by around 10% to offset these additional staff costs.
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Staffing Costs
In April 2025, employer NICs rose to 15%, and the National Living Wage increased to £12.21 per hour. For early years providers, staffing costs already account for a significant proportion of their overall operating costs, but day nurseries will have to find additional funds to cover the increased costs.
According to the National Day Nurseries Association’s (NDNA) survey, 96% of nurseries said they would have to increase their fees to alleviate cost pressures. Around 39% indicated they would consider offering fewer places to reduce losses, 69% would cut spending on resources, and 48% would reduce expenditure on premises.
While the Department for Education has announced increases in hourly funding rates for childcare entitlements in 2025/26 — 3.4% for under two-year-olds, 3.3% for two-year-olds, and 4.1% for three- and four-year-olds, compared to levels for 2024/25 — this will not cover the increased cost of staffing. According to the NDNA, around 85% of operators surveyed said they will make a loss on each place offered.
Although recent reports show that day nursery costs for parents have decreased, nurseries are projected to face average losses of £2,565 for a 30-hour place for three- and four-year-olds, and £935 for a 15-hour place for two-year-olds over one year. This means they will either have to seek alternative ways to reduce their cost base or pass the increases on to parents.
Recent data reveals that UK firms are reducing staffing at the fastest rate since 2021. While nurseries adhere to strict staff–child ratios, they will be able to count experienced practitioners within the rota at Level 3 without holding a full and relevant qualification as of September 2025.
Future Trends and Headwinds
The UK nursery market is highly fragmented, with a mix of small businesses, independents and charitable organisations. This diversity presents challenges for scaling technology, but adopting digital tools is key to improving education standards, operational efficiency and staff development. AI-driven analytics can support staff performance reviews, tailored Continuing Professional Development, and best practice guidance, helping raise the quality of childcare and secure long-term sustainability for settings.
Administrative tasks remain a major burden. AI solutions — such as smart attendance tracking, automated reporting, and funding application support — can streamline operations, freeing staff to focus on children’s learning and care.
AI-powered educational apps also enable personalised learning, offering targeted interventions and development tracking. As these technologies evolve, nurseries investing in adaptive platforms may gain a competitive edge, potentially creating a two-tier market.
Decreasing Birth and Fertility Rates
The UK’s birth rate is at a record low, with the Total Fertility Rate (TFR) in England and Wales reaching 1.41 children per woman in 2024, its lowest point since records began. This is significantly below the replacement level of 2.1 children per woman.
The average age of new parents is also increasing. In 2024, the standardised mean ages of mothers and fathers rose by 0.1 years, reaching 31.0 and 33.9, respectively. Mothers in London had the highest standardised mean age across England and Wales, at 32.5 years.
While the fertility rate in England and Wales is at its lowest since the 1970s, the UK population is still increasing through migration. Despite an increase in births in 2024, the TFR has continued to decrease — from 1.42 children per woman in 2023 to 1.41 in 2024. The TFR also considers changes in population size and shows an increased adult population in 2024 outweighing the increase in births, resulting in a decrease. However, the economy is on course to grow at a slower pace, meaning there will be less financial support for individuals and families.
Without tax rises, governments will struggle to deliver services such as schools. According to the Resolution Foundation, England could lose up to £1 billion in school funding by 2030, with exceptional falls in pupil numbers prompting closures as some establishments become financially unviable.
According to the Education Policy Institute, the North East is projected to see the greatest decline in primary pupil numbers, down 13% by 2028–29. Pupil numbers had increased due to a fertility surge in the 2000s, but that cohort has now moved through primary school. This directly links to day nurseries and feeds into a cycle. A lack of children attending local nurseries results in decreased demand for school places, and without the provision of schools, young families are less likely to settle in the area.
While an increased UK population suggests continued demand for day nursery places, the fall in birth rate is global. Therefore, net migration is unlikely to fill nursery places and plug long-term demand in some locations.
The Roll Out of School-Based Nurseries
In September 2024, the Education Secretary announced plans to establish 300 new state nurseries across England’s schools by September 2025. Backed by Labour’s manifesto pledge, the initiative is part of the ‘Best Start’ programme, which aims to expand early years education, particularly in disadvantaged areas.
As of September 2025, 189 school-based nurseries have already opened, creating over 4,000 new places. The rollout is supported by a £45 million capital fund, up from the initial £15 million. Primary schools can now bid for a share of the funding pot to convert empty classrooms to nurseries. Schools with existing nurseries can also bid to expand their early years provision.
A second round of applications opened in late September 2025 and will close in December, with maintained nursery schools now included in the eligibility criteria. The first cohort of successful bids was confirmed in spring 2025, and further expansion is planned for September 2026, targeting areas with limited childcare provision and areas with high deprivation.
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Ofsted Inspections
2024 saw big changes in how Ofsted inspects schools and early years settings, with the introduction of a new inspection framework to drive improved standards and reduce the pressures and anxiety for providers undergoing inspection.
The most notable change to the framework was the removal of the single-word overall effectiveness grade. From November 2025, schools and nurseries will no longer be known as ‘Good’ or ‘Outstanding’, but will be given a detailed five-point scale card to grade different areas of a provider's work.
The proposed report cards aim to provide a detailed overview of what schools and nurseries do well, as well as areas for improvement. This will offer a clearer, more balanced picture of performance and offer greater guidance to parents, aiding their decision-making in choosing the most appropriate setting or education provider for their child. Additionally, inspectors will include contextual data within report cards to provide further insight, including SEND and other disadvantaged pupil characteristics, attendance trends and local deprivation.
Under the latest updates, Ofsted will also be placing more emphasis on the development of communication, language and numeracy skills, particularly for children from disadvantaged backgrounds.
Safeguarding will become a separate category rather than being threaded through the overall assessment. The evaluation process of assessing a setting will be binary, using a ‘met’/’not met’ scale for providers. Settings deemed ‘not meeting the legal and expected standards’ will automatically be placed into either ‘special measures’ or ‘requires significant improvement’.
To support the growing demand for childcare places, Ofsted will streamline the registration process for early years providers. This will enable more providers to open their doors and meet the needs of families. Ofsted will also review how it registers, inspects and regulates multiple providers to ensure the sector continues to meet increasing demand and supports the long-term growth of early years settings, ensuring high standards are maintained across multi-site providers.
The changes to the framework aim to improve the inspection process and drive ongoing advances in early years education. While the impact of these changes is yet to be seen, many early years providers welcome them, particularly the removal of single-word judgements and the introduction of a more balanced inspection criteria.
For more information on the Children's Day Nursery sector, speak to one of our experts.
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