A growing number of real estate players have responded to the need for more affordable housing across the UAE over the past 12 months. While there certainly remains continued opportunities in this sector, another basic human need — education — is now attracting increased interest from both developers and investors seeking to diversify into alternative real estate sectors.
The attraction of the education sector is based on a combination of increased demand and government policies. Improving the quality of education is one of the key components of government plans to diversify the economy away from its current reliance upon oil and gas.
New research by JLL has identified the need for an additional 97 schools in Dubai and Abu Dhabi over the next four years. Within this total, the greatest opportunity is for private schools within Dubai, with around 36 new schools potentially required to satisfy demand by 2020.
The growth in demand reflects both the continued increase in the expatriate population as well as an ongoing shift towards private schools among Emirati families. This demand is creating new opportunities for those developers, investors and contractors looking to diversify beyond the traditional asset classes of residential, office, retail and hotels.
With increased competition compressing returns in a number of these traditional asset classes, real estate players have shown increased interest in alternative asset classes such as education, medical, infrastructure and worker housing.
The attraction of these asset classes is not just the growing demand in the market, but also the diversification benefits they offer. Assets such as schools also offer investors the potential to secure long-term stable cash flows from a single tenant willing to take longer term leases than those available in other sectors of the market.
The investment market is responding to increased demand for schools by creating new vehicles and funds seeking to invest either in education providers or in suitable real estate assets. We have seen a number of existing funds purchase real estate assets from school operators seeking to free up capital that can be reinvested in their core business.
In one such deal, GEMS sold a number of schools to Emirates REIT and taken a lease back on these assets. This is a model that we would expect to be replicated by other investors currently seeking opportunities in this sector.
It is not just investors that are benefiting from opportunities in the education sector, but developers and land owners have also recognised the benefits that a school can add to their projects. Developers such as Emaar (Arabian Ranches) and Al Futtaim (Festival City) have achieved premium rentals and prices for their residential projects through the inclusion of schools within these communities.
As the residential market becomes increasingly competitive over the next few years, the inclusion of a leading school in a community will continue to act as a key differentiator, resulting in the faster take up of villas and apartments.
With many commercial projects being delayed, the continued demand for private schools also provides opportunities for builders and contractors. This has resulted in JLL and other leading project management firms establishing specialist teams to serve the need for future schools, universities and other educational facilities not just within the UAE but across the broader region.
An additional benefit of the education sector from a developer or investor’s perspective is the level of government control. Unlike other sectors of the market which tend to suffer from periods of oversupply, future supply in this sector is more tightly regulated. This provides additional protection for developers and investors, which has resulted in higher returns than more traditional sectors of the real estate market.
Education forms a key pillar of the economic vision of both Dubai (2021) and Abu Dhabi (2030), which will lead to continued government investment and promotion of this sector over the next few years. Combined with the strength of demand for schools and the restricted opportunities available in other sectors, we expect to see even stronger interest in the education sector from real estate stakeholders in both the UAE and the rest of the region over the next five years.
— The writer is Head of Research at JLL Mena.
