Dubai: Invest in education — real estate funds in the Gulf searching for higher yield generating assets have been doing just that.
Dubai Investments and Al Mal Capital putting up a Dh1 billion plus fund to get into education (and health care) is but the latest in such high-profile announcements. More are coming through.
“All the big master developers in Dubai have plans to do so or have already done some investments,” said Craig Plumb, Head of Research at JLL’s regional operations.
“For developers, we are talking about an internal rate of return of 12-15 per cent on such exposures, while for fund managers this would be 8-9 per cent.
“Education-related investments — and these are in schools rather than higher academia — are on the upswing because of the changes to population and the fact that even more Emirati parents are opting to have their children placed in private schools than [to] go with public [institutions]. And schools linked to residential communities have proved to be extremely successful, with a prominent example being Al Futtaim Group and the school it has in Dubai Festival City.”
According to JLL estimates, Dubai requires 53 additional schools by 2020, of which 36 would be privately funded.
Abu Dhabi would need 44 new ones by then, of which 22 could come from the private sector. (According to official data, the number of school going children in the UAE was 629,000 during 2014-15, of which 75 per cent attended private schools.)
“I don’t think we have reached anywhere near mature levels when it comes to educational sector related investments,” said Plumb. “Investors are now more willing to consider alternative real estate exposures, and education is a clear beneficiary.
Interestingly, even retail investors are showing a greater willingness to commit to alternative assets, whereas earlier it was primarily the playground of institutional funds.
“Typically, the properties used for schools have long-term leases, with 15-plus years being the norm,” said Plumb. “This helps fund managers have a clear sight of the returns that a particular exposure will generate.
“Going forward, the education space could see more of the Gulf’s family-owned businesses making an entry, aligning with specialist fund managers.”
Private equity firms are also getting in, the likes of Saudi Arabia’s Sedco Capital Regional and Mena Real Estate Asset Management among them. For these investors, the reason to do so is because they see the “segment as defensive, backed by government support and capable of generating yields of 8-9 per cent,” states the JLL report.
