Private education is a multi-billion-dollar business in Dubai, and the sector is growing fast as new schools are built to serve the children of a rapidly expanding population of expatriates and Emiratis. The demand for fee-paying education is being met by investors and by foreign financiers as well as home-grown Dubai businesses. New schools need to compete for students in a regulated and transparent marketplace in order to achieve their growth targets and produce a return on investment.
Growth Indicators
In August 2015, the Knowledge and Human Development Authority (KHDA) announced that 27 new private schools, with a capacity for an additional 63,000 students, would open their doors over the next two academic years. That would bring the total number of private schools in Dubai to 196, with capacity to teach 341,000 students. The KHDA has also set a target of providing 360,000 private school places by 2020. It said in its most recent “landscape report” from March 2016 that 89% of places were taken in existing private schools, but that its predictions for growth were based on recent population trends in Dubai, with a continuing increase in the run-up to Expo 2020. The number of students enrolled at private schools in the emirate grew by 8.3% from the September 2012 intake to the following year, and by 4.3% in the year after that, reaching 255,508 in the 2014/15 academic year. If this number rose by 6% in 2015/16 and at the same rate the following year, the fee-paying school population in 2015/16 could reach 290,000, which is 87% of 341,000, the total number of places due to be provided by that academic year. If the number of students keeps growing at 6% per annum, Dubai will need to seat 400,000 by the 2019/20 school year.
Developers
The KHDA said in August 2015 that it was reviewing more than 60 applications to build new schools in Dubai, saying it had spoken with more than 200 investors and education providers at home and overseas. Looking to repeat best practice, the KHDA has targeted existing providers with a proven track record. “About 58% of Emiratis decide to go to private schools, even though public schools are free for them. So we encourage outstanding schools to expand within the emirate by opening new branches, at the same time attracting high-quality schools from other Emirates to establish branches in Dubai,” Abdulla Al Karam, the chairman of the board of directors and director-general of the KHDA, told OBG, adding that Dubai schools also teach 35,000 students from other emirates. Although there are clearly opportunities in the private school sector in Dubai, providers with new concepts about education may face some challenges, according to Sajida Shroff, CEO of Altamont Group, an education advisory that advises many international clients interested in establishing new enterprises in the city. “Investors will give you money if they can see your track record and know you have experience and that greenfield development is happening, but only with experienced operators,” she told OBG. Shroff recommends that those with more innovative education solutions consider taking over existing establishments to lower the risk.
Location
Another factor which may help investors succeed in gaining approval for their proposals from the KHDA is the selection of the right location. With new suburbs springing up all over Dubai, there is no shortage of greenfield sites. However, to have a chance of succeeding in the selection process, developers must ensure their education provision partner has experience of delivering a curriculum that will be popular in the community that is likely to move into the new area. One growing suburb of the emirate is Dubai Sports City (DSC), a development including two sports stadiums, shops and cafés, and home to 20,000 people, predominantly from Europe, with single people typically living in flats and young families in town houses. As there are plans to increase the size of the town by 40%, it offered a prime opportunity for a school developer; however, one proposal was turned down by the KHDA because it was not offering a UK or US curriculum. “They were not given a licence because the curriculum did not suit the community, and the KHDA does not want to create a situation where they are contributing to traffic problems by allowing a school here that will primarily serve a community that may be a 30-minute drive away,” Khalid Abdulrahim Al Zarooni, president of DSC, told OBG.
Knowledge
An appreciation of the unique social fabric of Dubai enabled the son of one couple who owned a private school in the city to become a billionaire. According to Forbes, Sunny Varkey was worth $2.1bn in November 2015 and the head of family firm GEMS, which operates 70 schools in 14 countries offering eight different curricula. GEMS operates 44 schools in the UAE, of which 30 are in Dubai, and also offers parents a choice of curricula and fee structure. “Sunny Varkey is a global visionary for education as an investment,” Shroff told OBG. “He has been incredibly perceptive about the different types of schools the diverse components of our population require and manages a platform that performs remarkably well as an investment and more so as an educator.”
Performance
Although the GEMS story is one of financial success, it has been built by maintaining academic standards, something that can be a challenge for some schools. Each year KHDA publishes review reports on every private school in Dubai on its website, and in 2015 all the reports, dating back to 2009, were posted for parents to read.
At the end of the 2014/15 academic year, KHDA announced that two schools on the site had closed after several consecutive years of receiving an “unsatisfactory” assessment. Schools that are judged “outstanding” require comparatively little marketing, and in 2015 five of the 14 schools with this rating were run by GEMS, including Jumeirah College. Following a UK curriculum, the school’s exam results tell their own story, with 96% of 206 General Certificate of Secondary Education candidates achieving five or more A* to C grades, and 45.6% achieving eight or more A* and A Grades. A-level students at the school sat 352 exam papers, 31% of them marked A or A* as compared to the UK average of 25.9%.
Staffing
As the number of schools grows in Dubai, principals and owners can face significant challenges in recruiting and retaining well-qualified staff. “The availability of outstanding teachers is the main concern in the sector, and building a training institution that provides a pipeline of professionals would be a solution for that,” Dino Varkey, group executive director and board member at GEMS Education, told OBG. There are a number of factors driving demand and competition for staff. The transient nature of the expatriate population in Dubai means many younger teachers may only plan to work away from their home country for a few years before eventually returning to their home markets. However, as the number of schools continues to grow, there is a temptation for new schools to poach the best of the teaching staff.
Costs
According to a report on the Dubai private school sector published in 2015, investors can expect to make a net profit of 15-20% after what the report calls the “initial stabilising years”. In June 2015, local media reported that GEMS had increased its revenue by 20% for the financial year ending in March 2016, taking $674.8m, up from $559.6m in the same period the previous year. The company revealed its student numbers around the world rose by 9% to 98,000. Fajr Capital, a Dubai-based firm, led a group including Blackstone and Mumtalakat, Bahrain’s sovereign wealth fund, in acquiring a “significant minority stake” in GEMS in 2014. However, the Colliers report cautions that for any business there is a high set-up cost in establishing a new school in Dubai, which it estimates at Dh185m-Dh275m ($50.4m-74.9m), to acquire land, pay for construction and fit out facilities for a school designed to accommodate 500-2000 students. The report suggests real estate yields for schools are typically 9-11%, and notes that banks may be unwilling to give loans for any project where the pay back period will take longer than five to seven years.
With competition for staff intensifying, there may also be an upward pressure on salaries, which could affect margins, particularly as schools strive to build an academic reputation and the trust of parents by minimising staff turnover. For smaller established education businesses in Dubai, expansion may require a looking for alternative funding sources. “I understand that some K-12 school groups are pursuing dynamic fundraising models including initial public offerings for fund expansion. Dubai Financial Market is an ideal exchange and these could add diversity to the listing mix once successful,” Shroff told OBG. “There are also family operators with one or two schools, and they are running them very well but have no plans to build more. Each type of school has a niche in the Dubai system,” she said.
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