Dubai Education Overview Growth Potential in a Competitive Environment

2 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

Colliers International

Colliers International is a global leader in commercial real estate services with over 15,800 professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a full range of services worldwide that includes: valuations, consulting, appraisals, brokerage, asset management and research, within the residential, commercial, retail, hospitality, healthcare, education, infrastructure sector, Public Private Partnership (PPP) and economic and industrial free zones. In MENA Colliers International has provided leading advisory services through its regional offices located in Dubai, Abu Dhabi, Riyadh and Jeddah since 1996. The latest annual real estate survey by Euromoney named Colliers International ‘Best Advisor’ in the MENA region, UAE, Qatar and Saudi Arabia.

Ian AlbertRegional Director | Middle EastColliers Internationalian.albert@colliers.com

Introduction“In the last decade, the private education sector in Dubai has witnessed significant growth; doubling enrolment figures and introducing additional supply. With demand anticipated to increase as the Emirati and expat population grows, an additional 52 new schools will be required in the Emirate by 2020 - which in turn will increase the competitive landscape within the market,” Mansoor Ahmed, Director, Healthcare, Education & PPP, Colliers International

This white paper focuses on key demand drivers for private education sector in Dubai and the challenges faced by the players in the market.

Mansoor AhmedDirector (MENA Region): Healthcare | Education | PPPColliers Internationalmansoor.ahmed@colliers.com

3 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

Key Demand DriversPopulation Growth RateDubai has one of the fastest population growth rates both regionally and internationally. According to the Department of Statistics, Dubai’s population stood at approximately 2.21 million at the end of 2013, registering a CAGR of 6.7% for the period between 2005 and 2013.

During 2005 – 2009, just before the global financial crisis, Dubai’s population was growing by a CAGR of 13.3% – compared to the period following the crisis (2010 – 2013), where the CAGR stood at 5.1%.

Colliers International estimates that the population of Dubai is expected to reach 3.48 million by 2020, subject to it maintaining the current growth rate patterns. Should the projected growth rate increase to 8% due to various recent initiatives and infrastructure projects being under taken by the Dubai Government, then the population is expected to reach 3.80 million by 2020.

Generation X, Y & ZThe population of the UAE and Dubai predominantly consists of expatriates, with the majority of the population falling between Generation X (1965 – 1980), Generation Y (1981 – 2000) and Generation Z (2001 – present). This translates into a wide base of young parents and school attending population.

97% of Dubai’s population is below the age of 50, and within Generations X, Y & Z.

The rise of Generation X and their dependents from Generations Y & Z, continues to dictate the trends incorporated within the private education sector in Dubai.

High Returns on Education InvestmentsHigh returns on private education investments – High quality, efficient international schools could achieve 15% – 20% net profit margins after initial stabilisation years.

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 socioeconomic indicators.

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.

3.5

3.3

3.1

2.9

2.7

2.5

2.4

2.3

2.1

2.0

1.9

2.2

-0.5

0.5

1.5

2.5

3.5

4.0

202020192018201720162015201420132012201120102009

Exhibit 1: Dubai Historical & Projected Population Trends (in Millions)

Age 4 years to 19 years Remaining Population

PROJECTEDACTUAL

Source: Dubai Statistics Centre, 2014

Exhibit 2: Dubai Population Pyramid

Source: Dubai Statistics Centre, 2014

Male Female

70-74

60-64

50-54

40-44

30-34

20-24

10-14

0-4

Age Range

18 16 14 12 10 8 6 4 2 0 2 4 6

Silent Generation 0.3%

Baby Boomers 2%

Gen X 33%

Gen Y 49%

Gen Y 15%

4 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

Current State of Private Education in DubaiDemand for Private Education Sector: How much and Why?In spite of representing almost 33% of the total schools in Dubai, public schools only accommodate approximately11% of the total student population within the Emirate.

In 2013/14, there were 30,994 Emirati students (13%), and 212,721 (87%) expatiate students in the Private Schools

Due to the transient nature of the expatriate population in Dubai, parents prefer enrolling their children within international schools, this is mainly attributed to the pursuit of a curriculum that is globally transferrable.

In addition to this, almost 57% of the UAE Nationals send their children to private schools in Dubai rather public schools.

Due to above factors significant growth has been witnessed within the private education market share – Growth has been supported by preferential shift towards international education, generated by the national population and GCC residents.

The student population within the private education sector in Dubai is almost evenly divided between both genders, with a male representation of over 52% compared to a female representation of almost 48%.

Emirati students enrolled within private schools in Dubai have almost doubled over the past decade, signalling an increased preference by Emirati parents to exposing their children to private schooling.

More Demand for Junior GradesOver 61% of students enrolled within private schools in Dubai are currently attending early education cycles (Foundation and Primary Stages), which is aligned with the following demographic landscape identified across the Emirate: reasons being:• growth in the general population of Dubai• Dubai population demographics; young families • Expatriate students returning to their respective countries of origin to complete

higher education

Furthermore, the highest historical growth in student enrolment during the period 2009 and 2013 was witnessed in FS1 and FS2 grades, with a CAGR of 11.1% and 9.6% respectively.

Student enrolments adopt a declining trend as they advance into further education cycles, which is mainly due to the transient nature of the expatriate population residing within the emirate.

Private Sector Students by CurriculumHistorically, the British curriculum has held a robust leading share in student enrollment, which corresponds with the transferable nature of the curriculum and appeals to the expatriate population residing in Dubai.

The total number of American schools (31) is higher than Indian schools (28), however, Indian school enrolment is significantly higher in comparison, which is mainly driven by higher school capacities, low tuition fees and the consequent aim to increase profitability.

The table below present number of schools, number of students and students per school for different curriculum in Dubai

It should be noted that number of Asians and Arabs either hold dual nationality, mainly United Kingdom, United State of America, Canada, France and Australia, or aspire to migrate to these countries at a later stage of their career. Consequently they prepare a curriculum which allow them to migrate to their potential new homes or send their children to higher education institutions in the countries where they hold second nationality.

Exhibit 5:Students By Grade (Private Schools)

Source: KHDA, 2013

KG

Primary

Middle

High

Students

0 20 000 40 000 60 000 80 000 100 000

5 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

US 19%

US 19%

Indian 31%

Indian 31%

Other 9%

Other 9%

UK 32%

UK 32%

IB3%

IB 3%

PrivateMOE 6%

Private MOE 6%

UK 59 78 936 1 338

Indian 28 75 119 2 683

US 31 45 862 1 479

Private MOE 12 15,836 1 320

IB 6 6 919 1 153

Others 22 21 043 957

Total 158 243 715 1 543

Curriculum 2013/14

Schools Students Students/School

2013

2014

2015

2016

2017

2018

2019

2020

Dubai

400 000

350 000

300 000

250 000

200 000

Future TrendsStudent PopulationThe population of Dubai has historically maintained a correlation with the economy. In times of rapid economic growth, population increases as companies draw people from different countries to meet their workforce requirements.

The student population has also increased in tandem with the overall population and economic growth. Since 2009/2010 the student population has increased with 82,800 students in 2009/2010 reaching over 243,700 students in 2013/2014, reflecting a CAGR of 7.5%.

The number of student seats in the private sector was recorded at over 269,700 in 2013, which is expected to increase to 315,500 in 2017, recording a CAGR of 5.5%, to reach a total of 360,000 seats by 2020, in accordance with the strategy set by KHDA.

6 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

2013

2014

2015

2016

2017

2018

2019

2020

Dubai

400 000

350 000

300 000

250 000

200 000

Exhibit 7:

7 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

Student Population

Considering market dynamics and average school capacity per curriculum following, a number of new schools will be required in Dubai by 2020

Key Message

Considering market dynamics & average school capacity per curriculum following number of new schools will be required in Dubai 2020 During the period between 2016 and 2020, the

private education market will require an addition of 52 educational facilities across multiple curriculum's, which translates into an approximate annual demand of 13 new schools.

British 19 Schools

America 10 Schools

India 9 Schools

IB 2 Schools

Others 12 Schools

269,700 student seats in

2013

19Schools

British

10Schools

American

9Schools

Indian

2Schools

IB

12Schools

Others

315,500 student seats in

2017360,000 student seats in

2020

Considering market dynamics & average school capacity per curriculum following number of new schools will be required in Dubai 2020 During the period between 2016 and 2020, the

private education market will require an addition of 52 educational facilities across multiple curriculum's, which translates into an approximate annual demand of 13 new schools.

British 19 Schools

America 10 Schools

India 9 Schools

IB 2 Schools

Others 12 Schools

269,700 student seats in

2013

19Schools

British

10Schools

American

9Schools

Indian

2Schools

IB

12Schools

Others

315,500 student seats in

2017360,000 student seats in

2020"During the period between 2016 and 2020, the private

education market will require an addition of 52 educational

facilities across multiple curriculums, which translates into an

approximate annual demand of 13 new schools."

Key ConstraintsHigh Set Up CostOne of the key constraint is high funding requirement to set-up private schools

Type cost of setting up a private school is presented on the right for a 500 to 2,000 Students School:

LandAED120million

AED120million

AED30million

AED275million

Construction Cost

Fit-outs and Others

Total Capital CostAED 185 million to AED 275 million

BUA 25,000 sqm- @ 1,000 / sqm = AED 25 million- @ 1,500 / sqm = AED 30 million

BUA 25,000 sqm- @ 4,000 / sqm = AED 100 million- @ 5,000 / sqm = AED 120 million

40,000 sqm to 80,000 sqm- Purchase: AED 60 million to AED 120 million - Lease: AED 5 million to AED 10 million p.a.

8 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

9 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA9 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

The set-up cost of a school is quite high and it is one of the main barriers for supply catching up with demand.

Although banks are actively seeking investments within the education sector, they are limiting their investments to established players with proven track records. Investors entering the education sector with Greenfield projects struggle to find project finance unless there is recourse to alternative cash flows.

Further difficulties arise with the terms offered. Education investments are typically long term investments contradicting banks risk appetite which typically extends to terms between 5 – 7 years.

A number of funding options are available to key education players, with an option to explore being successfully listed on regional or international exchanges via IPOs, although none of the schools, so far, are listed on the stock market. However, again these options are limited to existing established players

Exploring the sales and leaseback model is an alternative approach for established players to improve returns through release of cash from noncore activities, and directing capital into core business strategies, in order to accomplish further growth.

Typically real estate investments in the private education sector generate yields of 9% – 11%, whilst IRR’s for education operations range between 15% to 23%.

The latest trend to obtain finance is either through the sale of existing school buildings to investors on a sale and leaseback basis or a number of landlords / investors are willing to build schools for operators to lease on a long-term basis.

Attracting and Retaining Quality ResourcesThe second major challenge facing operators is the ability to attract and retain quality staff in order to deliver on the promise of quality educational services.

Operators desperate to recruit appropriate specialised staff have prompted a trend of poaching teachers and management staff from competitors.

Consequently, salaries have witnessed considerable growth in Dubai and the UAE, which indicates that an effective international recruitment process is imperative in order to achieve operational success.

10 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

Colliers International Healthcare | Education | PPP

Our team in the MENA region:Feasibility Studies | Due Diligence | Investment Memorandums (IM)

50+ (US$ 1.9b+) 12 Million ft²+ BUA 60,000+ Students

Land | Property | Business Valuation

20+ (US$ 3.5b+) 5 Million ft²+ BUA 25,000+ Students

Operator Search & Selection | Contract Negotiation

10,000+ Seats 6 Assignments

SERVICES AT A GLANCEStrategic & Business PlanningEconomic Impact StudiesMarket & Competitive Studies Market & Financial Feasibility StudiesFinancial ModellingMarket & Commercial Due DiligenceLand, Property & Business Valuation Mergers & Acquisitions AssistanceBuy Side Advisory / Sell Side Advisory“Sale & Lease Back” AdvisoryPublic Private Partnership (PPP) & PrivatisationOperator Search & Selection and Contract NegotiationSite Selection & Land / Property AcquisitionAsset & Performance ManagementPerformance Management & Industry Benchmark Surveys

CONDUCTED STUDIES FOR 20+ K 12 Schools10+ British Schools5+ Nurseries5+ American Schools5+ American Schools2+ French Schools2+ Indian Schools1 German School1 Medical College1 Nursing College

Countries | MarketsUAE | Qatar | KSA | Oman | Jordan

Egypt | Sudan | Ecuador

Feasibility Studies | Investment Memorandums | Due Diligence Financing & Refinancing Merger & Acquisitions

School Valuations for End of Year Audit | Financing & Refinancing Merger & Acquisition

Total Number of Seats 2010 – 2014

Mixed Use Education Parks 2010 – 2014

Mixed Use with Parks 2010 – 2014

Ongoing Projects

Total Number of Seats 2010 – 2014

Total Number of Seats Valued 2010 – 2014

11 | Dubai Education Overview | Growth Potential in a Competitive Environment | Colliers International MENA

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15,800professionals and staff

About Colliers InternationalColliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services and insightful research. The latest annual survey by the LipseyCompany ranked Colliers International as the second-most recognized commercial real estate firm in the world. In MENA Colliers International has been providing leading advisory services through its regional offices since 1996. Colliers International currently has four corporate offices in Dubai, Abu Dhabi, Riyadh and Jeddah.

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The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Mansoor AhmedDirector | MENA RegionHealthcare Education & PPP +971 55 899 6091 mansoor.ahmed@colliers.com

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