Australian Universities - creating successful precincts · benefits that large urban communities have provided universities across the United States (US), United Kingdom (UK) and

May 2019

Australian Universities Creating successful precincts

Australian Universities PwC i

Contents Overview 1

Why precincts are important for universities 3

Precincts in practice 5

Key takeaways 11

Overview

Australian Universities PwC 2

Overview The Australian education sector continues to experience high levels of growth in both revenue and investment. Australia’s international education sector alone is valued at $21.8 billion1. Not only does this represent a large contribution to national gross domestic product (GDP), but Australian universities also make significant capital investments into the local economy through expansions and upgrades to campus estates, supporting infrastructure and collaboration with the private sector.

For universities to continue to grow, innovate and maintain relevance in a global society it will be important that they integrate with business, government and the community in which they operate. When looking at international peers and the benefits that large urban communities have provided universities across the United States (US), United Kingdom (UK) and Europe, there is no doubt that there is enormous opportunity within the Australian higher education sector to pioneer new approaches and break down traditional campus boundaries.

PwC has played a lead role in assisting universities, governments and developers across Australia and globally in realising their precinct vision and specifically their strategy in relation to:

• Transport infrastructure to enable efficient and equitable access by staff, students and industry and how this can support precinct development including public transport, roads, cycling and walking

• Utility solutions to provide clean, reliable and cost effective supply of energy, water and waste services for tenants within the precinct

• Attraction and integration of key institutions and businesses to the precinct

• Development of SME and start-up eco-systems in the precinct

• Provision of affordable housing and student housing including the alternative procurement and funding options

• Frameworks to assess the impact and priority of social sector investments in precincts, such as health, human services, education and justice, including place-based integration of social services

• Creation of amenity and vibe in precinct including in relation to public programs, public spaces, retail, arts and sports

• The integration and procurement of smart city technology within the precinct.

• Geospacial data and modelling for analysis of the precinct including scenario modelling using a digital twin

• Governance and management options for precinct development that allow universities to work with governments, the private sector and NGOs on shared goals for the precinct

The selected case study projects in this paper provide an insight into practical examples of how precincts have been implemented by universities in Australia, US and the UK. The purpose of this paper is not to cover all of the above issues, but rather to identify how universities can be involved in the creation of precincts to achieve both their education/research goals as well as their financial strategies, and how partnerships with the private sector, federal and state governments across the design, construction, financing and operation of these precincts will be fundamental to their success.

1 Cited in Universities Australia Data Snapshot, March 2017, https://www.universitiesaustralia.edu.au/australias-universities/key-facts-and-data.

Why precincts are important for universities


Why precincts are important for universities For universities to continue to grow, innovate and maintain relevance in a global society, it will be important for them to be able to break down traditional campus boundaries and integrate business, government and the community in which they operate. The shift of universities away from a traditional campus towards a mixed use precinct will be increasingly important so that they can:

• Create research and learning environments that reflect the society in which they operate.

• Continue to create graduates that meet the needs of the business and government expectations.

• Provide places that foster diversity of thinking, innovation and creativity that challenge tradition.

To achieve these outcomes, universities across Australia and the world are looking at new ways to fund the development of precincts to grow collaboration with other universities, government and industry. While universities are a key stakeholder and an essential ingredient in the establishment of precincts, more leadership, collaboration and investment will be required from state and federal governments.

The likely introduction of funding reforms by the Federal Government, as well as an increasingly competitive market for international students, will restrain available funding for universities to fund construction and maintenance of core education assets leaving limited available capital to contribute towards the costs of the supporting infrastructure required to activate new precincts.

Over the period 2012 to 2016, the higher education sector spent approximately $16 billion (or approximately $3.2 billion per annum) on campus infrastructure.2 The substantial investment in the construction and maintenance of new accommodation, teaching facilities and laboratories has been critical for universities in growing its share of international students and remain competitive in a global market.

While the substantial injection of capital has resulted in a significant transformation of teaching, learning and research campus infrastructure, the ability of the sector to fund and sustain quality of these assets for future generations will require significant funding. The growing capital expenditure funding obligation to maintain the new assets adds to the deferred maintenance backlog which is estimated to be in excess of $1.8 billion, as well as $2.2 billion in deferred asset refurbishments that exist across the sector.3

Looking forward, universities will need to seek alternative sources of funding to generate the capital to establish precincts including from sources such as the private sector, state, federal and local governments.

2 Cited in publications that can be accessed from https://www.education.gov.au/finance-publication.

3 Universities Australia Paper – The Facts on University Funding, April 2017.

Precincts in practice


Precincts in practice The benefits of university precinct developments have been demonstrated globally.

Precincts are versatile and can be used as a means to developing transport infrastructure in the areas surrounding a university (e.g. Melbourne Metro and the University of Melbourne), to develop an incubator/start-up eco system, as well as often being early adopters of smart city technology and combining health and education precincts (e.g. University of Wollongong).

In this paper, PwC has specifically analysed four opportunities that Australian universities could explore to generate the capital to establish precincts. Precinct developments are bespoke and, as a result, Australian universities should identify the key educational and financial outcomes they seek to achieve prior to investment.

Opportunity 1 – Colocate with industry or other universities Description

A university either sponsors or enters into a financing arrangement with a capital partner for the development of a purpose built facility. The purpose built facility is typically developed on land owned by the university, state government or by a capital partner that incorporates surplus lettable area to be leased to the industry partners and commercial tenants.

Education outcomes Financial outcomes

• Collaboration opportunities for students and commercial tenants within a precinct or within a campus will provide enhanced opportunities via research, work placements or courses.

• Bring together multiple universities within a purpose built facility to share knowledge, teaching resources/curriculum and research opportunities.

• Utilise third party specialist capital partners to transfer development risks and source third party industry partners.

• Share the costs of common infrastructure with commercial tenants or universities.

• Create economies of scale through sharing infrastructure and enhanced buying power.

Opportunities for involvement of State and Federal Government

• Sourcing appropriate land and planning approvals for the development of a precinct. • Amendments to restrictive covenants on university owned land which may prevent commercial development. • Capital grants and subsidies towards the financing of precinct infrastructure, common areas or industry participation. • Co-location of state and federal government agencies and participation in teaching and research opportunities.

Case Study A – Western Sydney University and University of New South Wales – 1 Hassel Street, Australia

Western Sydney University (WSU) and the University of New South Wales (UNSW) will lease 50% of the space of the Engineering Innovation Hub, a state-of-the-art purpose-built facility that will be developed by Charter Hall and will be located in the heart of Parramatta at 6 Hassall Street.

Located within the Parramatta Square Precinct, and delivered in partnership with Charter Hall, the Engineering Innovation Hub will be home to a first-of-its-kind higher education collaboration in Australia. Leveraging the engineering expertise of both WSU and UNSW, the Hub will deliver a highly progressive, industry engaged engineering course in Australia's fastest growing region.



Case Study B – The University of Warwick, UK

The University of Warwick (Warwick) has agreed to share teaching staff and facilities with universities in Paris and Brussels to ensure continuing access to European research projects and students following Britain’s exit from the European Union (EU).

The partnership with L’Université Paris Seine, and Vrije Universiteit Brussel (VUB) will enable Warwick to continue with EU research projects and teaching without having to set up a campus in another European country as other UK universities have done.

Warwick and the Université Paris-Seine plan to develop a joint masters in mathematical modelling, four fellowships for early career researchers, five joint PhD positions and a shared lecturer in mathematics. They also intend to create a series of student exchanges including one between L’Université Paris Seine’s Essec business school and its equivalent at Warwick for students on their respective masters degrees in finance. In Brussels, the agreement will establish a double masters degree linking Warwick’s politics and international studies programmes with VUB’s Institute of European Studies and fund two early career research fellowships with VUB.

Opportunity 2 – Leverage surplus land to create innovation precincts Description

The university sponsors the development of a purpose built facility on surplus land in order to connect students, entrepreneurs, corporations and communities. Typically these developments are primarily funded by the university due to the start-up nature of the tenants and to provide greater control and influence over scope of activities occurring across the precinct. New financing models are being implemented which include establishing special purpose investment vehicles or entering to Design, Build, Finance and Maintain arrangements to draw on the specialist development and investment capability of the private sector.


• Create innovation and collaboration districts in close proximity to the University campus.

• Co-location of research teams, entrepreneurs, multinational corporations, creative communities and social enterprises within collaboration spaces.

• Transfer of development, financing and whole of life asset maintenance risks to the private sector.

• Performance based contracts with the private sector to maintain asset quality and services standards desired by the University and tenants.

• Repayment of the capital costs over the life of the asset to match income generated by the University.

• Operating and asset valuation benefits through the development of surplus land.

• Maintaining University ownership (or control) over the asset and land upon expiry of the term.


• Sourcing appropriate land and planning approvals for the development of the precinct. • Capital grants and subsidies towards precinct infrastructure, common areas or industry participation. • Amendments to restrictive covenants on university owned land which may prevent development. • Colocation of state and federal government agencies and participation in learning and teaching opportunities.

Case Study – Carlton Connect Initiative

The Carlton Connect Initiative (CCI) is a leading campus-centred, multi-disciplinary innovation hub, where industry, government and academia collaborate.



CCI aims to be Australia’s premier innovation precinct anchored by the University of Melbourne. CCI is a platform that allows for talented people to collaborate with like-minded individuals, partners and academics. The project is a $500 million development comprised of university space, innovation hub, office, retail and student accommodation.

A Lendlease-led consortium including GIC, the Singaporean sovereign wealth fund, will develop a $500 million mixed-use project for the University of Melbourne in inner-city Carlton. The project will rise from the former Royal Women's Hospital site on the corner of Swanston and Grattan streets, just opposite the University.

To be known as an innovation precinct, the 62,000-square-metre development includes commercial space as well as retail areas, childcare, collaboration space and accommodation for 528 students. The consortium includes Urbanest, which will own and operate the student residencies, and Spotless is the facilities manager.

Lendlease will develop and build the project, taking a stake in the commercial space, alongside GIC. The consortium will build, own and operate the mixed-use project for 42 years. The University will occupy about 75 per cent of the commercial space, with about 10,500 sqm on the market for lease. The project will also be home to the new Science Gallery Melbourne.

Opportunity 3 – Colocate with the community and create an ‘education city’ Description

A precinct is established on or in close proximity to University campus land under a development agreement with an industry partner or consortium of partners. The development partner establishes a master planned community which includes residential land, commercial tenants, health care, aged care, retirement living, disability care and other allied health services.


• Integration of research and learning environment within a living community and city.

• Create a living and learning campus environment where students, staff and the community can collaborate.

• Create a master planned community that grows and evolves with changes to the higher education delivery model.

• Development of surplus land. • Provide new streams of income from land development

and tenants. • Generate employment opportunities in aged care,

healthcare, research, retail and hospitality sectors.


• Sourcing appropriate land and planning approvals for the development of the precinct. • Capital grants and subsidies towards precinct infrastructure, common areas or industry participation. • Amendments to restrictive covenants on University owned land which may prevent development. • Colocation of state and federal government agencies and participation in learning and teaching opportunities.

Case Study – University of Wollongong Health and Wellness Precinct, Australia

In conjunction with the preferred developer, Lendlease, the University of Wollongong (UOW) is developing a unique, state-of-the-art Health and Wellbeing Precinct at its Innovation Campus. It will provide preventative patient-centred, multidisciplinary health facilities to improve and maintain the health and wellbeing outcomes for people in the Illawarra and Shoalhaven.

The hub of the precinct will be a $44 million community health clinic– dedicated to being a centre of excellence in integrated healthcare to address key health issues being experienced within the Illawarra region.

An Australian-first, the centre will provide a one-stop shop model of care with the central focus being the needs of the patient and their family.



It’s the first time truly integrated health delivery with intergenerational connectivity will be delivered in Australia. This means everything from respite, rehabilitation, disability, aged-care services, and mental health services will all be delivered in the one precinct. It will bring together a range of health professionals including doctors, physiotherapists, psychologists, dietitians, dentists, pharmacists, academics and pathologists.

The precinct will also include an innovative and integrated aged care and senior living village. In partnership with an aged living provider, this initiative will see aged-care services link research, teaching and learning on a daily basis.

Opportunity 4 – Collaboration Investments Description

Partnership arrangements are established with investors, operators or developers to undertake commercial investments into campus infrastructure or services assets that provide new revenue streams or cost savings as well increased opportunities for learning and research collaboration.


• Bring specialist private sector capabilities on-campus to undertake research and learning collaboration opportunities.

• Colocation of industry alongside the university providing new ways to secure work placement and research opportunities for students.

• Create new income sources to fund core education and research activities.

• Transfer of operational risk and maintenance obligations to the private sector.

• Create commercial investment opportunities that can be monetised at some point in the future.


• Capital grants and subsidies towards precinct infrastructure, common areas or industry participation. • Amendments to restrictive covenants on university owned land which may prevent commercial development.



Case Study – Ohio State University – Energy Management Initiatives, USA

The Ohio State University (OSU) utility outsourcing transaction is being heralded as landmark, introducing elements of traditional public private partnerships (PPPs) to the private market and creating a new asset class.

In July 2017, the OSU entered into a 50-year concession deal worth more than USD 1 billion which saw Ohio State Energy Partners (OSEP), a joint venture between Axium Infrastructure and ENGIE, assume responsibility for providing and operating most utility services at the University’s Columbus campus. Services to be operated and maintained by OSEP include:

• Electricity • Natural gas • Cooling • Geothermal • Steam / heating.

Along with introducing innovative technologies and service delivery models to OSU, the concession provided three key financial benefits:

1 An upfront payment of USD 1.015 billion will be deposited into its endowment. The OSU uses income produced by its endowment for strategic initiatives including student financial aid, recruitment and construction of new research, classrooms and enhanced sustainability efforts.

2 A USD 150 million academic collaboration investment which will fund new energy research and development centre which will undertake academic programs, internships and research initiatives.

3 A commitment by the OSEP consortium to improve energy efficiency by 25 per cent within 10 years which will require approximately USD 250 million of capital investments to be designed and funded by ENGIE.

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Key takeaways


Key takeaways Universities can be catalysts for the development of precincts by thinking beyond traditional procurement methods and designing partnerships that include contributions from industry, state and federal governments. Based on the case studies identified in this paper, there are a number of ways universities can secure alternative sources of funding to generate capital to fund precincts. This includes:

Colocate with industry or other universities to share

costs

Colocation with industry and other universities will:

• Enhance collaboration opportunities for students and commercial tenants via research, work placements or courses.

• Provides a foundation for the university sector to collaborate and share learning and research resources.

• Create economies of scale through enhanced buying power to create a precinct which is of sufficient scale and quality to attract world class industry tenants.

Unlock the value from

surplus land

Universities can leverage their estates to:

• Create innovation and collaboration districts in close proximity to the university campus.

• Colocate research teams, entrepreneurs, multinational corporations, creative communities and social enterprises within collaboration spaces.

• Generate new income streams to the university to support the future cost of core education services.

Enhanced educational

experience

Attracting private sector capabilities on-campus to undertake research and learning collaboration will provide increased opportunities for both students and staff to secure work placements and research opportunities.

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Contact

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Australian Universities - creating successful precincts · benefits that large urban communities have provided universities across the United States (US), United Kingdom (UK) and