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Investing in Dubai’s education sector

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The Dubai education sector is anticipated to grow considerably as enrolment figures continue to double and Emirati and expat populations’ increase – a clear sign for investors to explore the market.

April 2015

Following a surge in the education sector in Dubai over the last decade, an additional 52 new schools will be required in the emirate by 2020. As operators struggle to keep pace, experts maintain that the demand for schools is positive as it will only increase competition within the market.

In spite of representing 33% of the total schools in Dubai, public schools accommodate 11% of the total student population within the emirate, and therefore the focus for operators is on private schools.

In its recent Dubai Education Overview report, Colliers reveals how international operators are expressing keen interest in establishing their regional presence in Dubai owing to the ease of market entry, absence of bureaucracy and positive demographic and socio-economic indicators.

“The current supply of education facilities does not meet the demand of the burgeoning population. This is a situation that has been recognised by the Government which has introduced a number of initiatives to encourage the private sector to match the shortfall, and benefit from this potentially lucrative sector,” says the Colliers report.

The market is growing in confidence for school operators with the opening of 26 schools in the last three years. And according to property experts it’s a clear sign for institutional investors to explore further.

INVESTMENT OPPORTUNITIES

Mansoor Ahmed, Director Development Solutions, Healthcare, Education, Public Private Partnership at Colliers explains that for institutional investors the Dubai education market offers opportunities both in real estate (investment in schools’ properties via sales and leaseback), as well as, direct investment in the business (private equity).

“A number of operators are looking to cash their investments in the school properties to improve returns through release of cash from non-core activities, and directing capital into core business strategies, in order to accomplish further growth,” says Ahmed.

He adds that operators can earn 15%-20% margins in business compared to 8% to 10% returns on property.

However equity investors may find that there are not many opportunities available in the market. “There are limited players who are looking for equity investments and the current owners of the schools are looking for very high EBITDA (earnings before interest, tax, depreciation and amortization) multiples, hence there are not many transactions relating to private equity deals,” says Ahmed.

For Chris Francis, Director, Head of Education & Healthcare, Middle East and Africa at JLL, institutional investors in schools are more regional than international from various parts of the GCC including private equity players.

“Dubai has one of the biggest international school markets in the world. It is unique in nature, not only do private schools cater to as high as 89% of the student population of Dubai but also a very high percentage are international schools (the more recent ones) making Dubai one of the most attractive market for school operators across the world,” says Francis.

DEMAND DRIVERS

One of the major drivers is population growth. The population of Dubai has historically maintained a correlation with the economy and in times of rapid growth the population has increased. The student population has also increased in tandem.

According to the Colliers report, Dubai has one of the fastest population growth rates, both regionally and internationally. The Department of Statistics states that Dubai’s population stood at approximately 2.21 million at the end of 2013, registering a Compound Annual Growth Rate of 6.7% for the period between 2005 and 2013.

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