The massive increase in demand for private schools is stimulating interest from real estate investors, developers and builders seeking ‘alternative investments' as the supply of quality assets in more traditional sectors such as offices, retail, residential and hotels remains limited, according to JLL's latest report ‘School's In'. It revealed private schools are becoming increasingly preferred in the MENA region. The demand for private education is being driven by both the growth in the number of expatriates and the desire of more national families for better quality education for their children. "The requirement for around 350 private schools presents significant opportunities for real estate investors, developers and builders," said Craig Plumb, Head of Research, MENA, JLL, at a keynote presentation at the Cityscape Global summit. "The education sector has sparked the interest of many real estate investors right across the MENA region. Private equity firms in particular have been very active in recent years, and they will continue to play a pivotal role in the expansion of the private education sector here." In Saudi Arabia, the report said recognizing the need to improve the quality of education, the government has allocated an average of 23 percent of the national budget to building new schools and improving existing schools over the past 10 years. In Riyadh alone, as of 2015, expatriates accounted for 42.1 percent of Riyadh's population. Although this percentage is below the level recorded for Jeddah, this segment is expected to reach 42.8 percent. A total of 395 new schools will be required to house the growing school age population of Riyadh by 2020, with 154 of these in the private sector. In Jeddah, the school age population currently stands at just over one million students. This number is expected to grow by average 2.2 percent per annum to reach 1.2 million persons by 2020. The growing school age population will add pressure on existing schools creating an opportunity for the private sector to capture some of the growing demand. A total of 194 new schools are forecast to be required in Jeddah by 2020, with 67 of these in the private sector. Historically, real estate investors and developers in the MENA region have focused on four traditional asset classes - residential, offices, retail and hotels. However, ‘alternative investments' including the likes of education, healthcare, infrastructure, logistics and student housing have become more popular in recent years. "The shortage of quality income producing assets in traditional sectors and declining returns in some locations has further prompted the interest in alternative asset classes," added Plumb. "With new investment vehicles facilitating the investment in schools, alternative investments diversify the investor portfolio and have the potential to improve the overall risk-return profile. Both retail investors and institutions are seeking greater exposure to non-correlating alternative investments that provide consistent income with low volatility." As the school age population is growing in the region, Dubai, Abu Dhabi, Riyadh, Jeddah and Cairo all require investment in new private schools by 2020. According to the Federal Competitiveness and Statistics Authority (FCSA), the majority of students in the UAE attend private schools, with the total number of students reaching 629,000 last year, 75 per cent of which were in private schools. While the percentage of pupils in private education is somewhat lower in Saudi Arabia and Egypt, this has been the fastest growing sector of the market in both countries in recent years. Private schools in Saudi Arabia have increased from 5 percent of new enrolments in 2011 to 11 percent in 2014. Similarly, in Egypt the private sector accounted for 10 percent of the total of 18 million students enrolled in the academic year of 2015-2016. The growing demand for private schools has resulted in strong financial returns from this sector of the market. According to a report prepared by Abu Dhabi Education Council (ADEC) in 2015, private schools in Abu Dhabi earned close to AED 3 billion in profit over the preceding four years. Investment in private schools in Abu Dhabi between 2010 and 2015 reached AED 2.3 billion between 2010-2015, with 45 new private schools being delivered. "Education is regarded as a lucrative business opportunity," said Plumb. The school age population is growing and this is the main attraction for the education sector. In Dubai, for example, we expect the expatriate population to grow at average rate of 4.7 per cent over the next five years, and as expatriate workers move with their families, this creates demand for private education facilities." "There are three major drivers of the education sector for real estate investors; the strength of demand, the attractive financial returns available and the alignment of this sector with government policies to improve educational standards across the region."
