Demand for British Schools in Dubai and Abu Dhabi October 2016 · Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International 3 Introduction In September

Demand for British Schools in Dubai and Abu Dhabi

October 2016

2Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International2 Demand for British Schools in Dubai and Abu Dhabi | September | 2016 | Colliers International

For further information contact Mansoor Ahmed ([email protected]) or Shehzad Jamal ([email protected])

Accelerating success.

Opportunities for Education Service Providers and Investors Seeking to Expand in the Middle East and North Africa

> An established and recognized British educational institution is seeking to setup a school under a management agreement in the UAE. Colliers is looking to identify suitable investors who are considering exposure in UAE’s education sector.

> Colliers is seeking investors to partner with a recognized education operator in the Middle East to establish a school in Dubai as part of an upmarket residential community by way of a Joint Venture or lease of a Built-to-Suit (BTS) property.

The last few years have witnessed a considerable rise in foreign investment in Africa ultimately leading to an increase in demand for master planned residential developments including supporting facilities such as schools. Colliers is seeking to introduce US and UK based education service providers to known investors in East Africa’s education space and is also looking for investors who are interested in the lucrative education sector in East Africa.

Operating and Investment Opportunities in Dubai

Operating and Investment Opportunities in East Africa

Colliers has a number of opportunities in the Northern Emirates of UAE for education service providers. Market entry possible by way of:

> Management Agreement

> Joint Venture

> Long-term Lease of Land and/or Property

Operating and Investment Opportunities in the Northern Emirates of UAE

Colliers is seeking to introduce American, British and German education service providers to known investors in Egypt, providing opportunities to enter the education market in Cairo and Alexandria. Possible modes of market entry include:

> Management Agreement

> Joint Venture

> Long-term Lease of Land and/or Property

Operating and Investment Opportunities in Egypt

3Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International

IntroductionIn September 2016 Kent College Canterbury, advised by Colliers, opened its doors in Dubai completing a process that is the culmination of a significant amount of time and planning for entry into the competitive and profitable private education sector within the United Arab Emirates (UAE). Kent follows other UK private school luminaries like Repton (2007), Brighton (2011) and Cranleigh (2014).

Although British nationals represent roughly 2% to 3% of the student population, the British curriculum remains within the top three curricula offered in the UAE. The popularity of the curriculum is because it is also favored other nationalities such as, Indians, Pakistanis and nationals from Arab and Commonwealth Countries. The demand is further augmented when non-UK nationals are looking to attend higher education in the UK and studying the British curriculum in school is sometimes a prerequisite to entry.

Dubai English Speaking School (DESS) is the oldest British School in Dubai, it started from a room in a villa in 1963 with 10 pupils taught by parents and a British Army Officer. By end of academic year of 2014-15, schools offering the British Curriculum stand at number one in Dubai and number three in Abu Dhabi, the business and Capital Cities of the UAE respectively.

• Dubai - Out of a total of 255,000 private school students the British Curriculum schools represent some 85,000 students (33%) followed by the Indian curriculum (31%) and the US curriculum (18%).

• Abu Dhabi – Students enrolled at British curriculum schools represent 22% of the private sector student body, some 50,000 out of the total of 223,000 students in private schools in Abu Dhabi, trailing behind the US curriculum (24%) and Ministry of Education (MoE) curriculum (23%).

With a long history, successful market entrants and sustainable demand the British curriculum and the private school sector is underpinned by strong fundamentals. There are opportunities and challenges and this white paper sets out to highlight both the opportunities and potential pitfalls to investors and operators.

This white paper presents the challenges and opportunities for investors / operators who would like expand in this lucrative sector. Clyde & Co., a leading law firm operating in UAE, who have advised a number of British schools which have established or are contemplating to establish or extend their operations in the UAE, have also contributed to this white paper in order to provide an opinion on various legal matters involved in establishing a school in the UAE.

Ian AlbertRegional Director (MENA)Valuations and Advisory

Colliers [email protected]

Mansoor AhmedDirector | Development Solutions

Colliers [email protected]

Shehzad JamalSenior Manager | Healthcare,

Education & PPP [email protected]

Simon GamblinPartner at Clyde & Co [email protected]

Ross Barfoot Partner at Clyde & Co [email protected]

"The expertise which Colliers brought to the due diligence investigations, including financial feasibility studies and sensitivity analysis, and the support given in contract negotiation, including commercial terms and conditions, were all crucial in bringing the investor and the operator together. Colliers continued to assist the investors in assisting negotiations with financial institutions and potential investors to raise equity".

"Anticipation of needs, sympathy and sensitivity to all parties, the detail of analytical work, and customer service, are all hallmarks of the quality which Colliers provides to potential operators and investors and I highly recommended any operator or investor who would like to set-up schools in the MENA Region to work with Colliers International Dubai office team to make their project a success story".

Dr David J Lamper EdD MA AKC, Executive Head Master, Kent College Canterbury

Success Story - Testimonial

4Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International 4


Abu Dhabi & Dubai Education Sector Overview and Analysis


UAE Education Sector - The Regulatory Framework & Relevant AuthoritiesThe education sector of the United Arab Emirates is governed by the Ministry of Education (MoE).

The Ministry of Education implements the Federal Mandate and oversees all Emirate based education councils and authorities within UAE.

Regulation and development of the education sector in Dubai is overseen by the Knowledge and Human Development Authority(“KHDA”).

KHDA’s role is to ensure that private schools in Dubai are established and operate according to the highest quality standards and is responsible for the growth, direction and quality of private education and learning in Dubai.

Regulation and development of the education sector in Abu Dhabi is divided into three administrative regions; Abu Dhabi Region, Al Ain Region and the Western Region, all of which are overseen by the Abu Dhabi Education Council (“ADEC”).

ADEC governs all public schools, private schools and higher education institutions within the Emirate and assumes responsibility for managing, guiding, adopting and implementing various educational development strategies and initiatives in the Emirate.

CLYDE & CO OPINION - LOCAL REGULATIONThe UAE has laws and regulations governing the conduct of commercial activities, the ability for foreign institutions to operate or establish schools, and the establishment and operation of schools generally. The UK institution will need to be mindful of those, ensure that it complies with any requirements placed on it, and may be expected to take responsibility for the academic plan and other content of any application to licence the local school even if the UK institution does not have ownership. The UAE has a very different legal system to the UK and the laws and regulations, compliance requirements and liabilities can be very different to that of the UK.

The regulation of private schools in the UAE is governed by the Ministry of Education (MoE) (a Federal Government Authority) except in Dubai, where the Knowledge and Human Development Authority (KHDA) is the regulator, and in Abu Dhabi, where the Abu Dhabi Education Council (ADEC) is the regulator. Both KHDA and ADEC are Emirate level government authorities and not federal.

In recent years, all of the Emirates have created free zones or special economic zones which offer full ownership of entities established within them, including foreign investors. Dubai currently has the most free zones. Only Dubai and Ras Al Khaimah have dedicated free zones for education institutions (In Dubai, Knowledge Village and Dubai International Academic City; in Ras Al Khaimah, the RAK Academic Zone).

It is important that the UK institution and its investor understand the regulatory framework in which the UAE school will operate. Not only will this have an impact on the level of fees that can be charged but also when and if fees can be increased and by how much. Both KHDA and ADEC control school fees. Understanding the regulatory framework within which you will need to operate will allow you to plan for unexpected changes to regulations or at the very least allow for a contingency within your business plan to take into account cost implications of regulatory compliance.

UAE regulations may also have an impact on the UK institution in the UK and thought will need to be given to the best corporate, governance and/or contractual structure to put in place to mitigate to risks that this may impose on the UK institution.

Exhibit 1: Education Authorities / Councils in UAESource: Colliers International 2016

Ministry of Education

UAE

Abu Dhabi Education Council (ADEC)

Knowledge & Human Development Authority (KHDA)

Sharjah Education Council (SEC)

Ras Al Khaimah Education Zone (RAKEZ)

Fujairah Education Zone (FEZ)

Ajman Education Zone (AEZ)


Abu Dhabi Education Sector – Review & AnalysisAs of 2014, there were 438 schools operating in Abu Dhabi of which 58% are public schools while the remaining 42% were being run by the private sector.

Although a number of schools have opened in the Emirate over the recent past, the overall reduction in schools is due to ADEC’s enforcement of regulations in 2010 that barred schools from operating in residential villas forcing a number of schools to either relocate or cease operation. It is estimated that there were nearly 46,000 students enrolled in 72 schools that were operating out of villa properties. Additionally, some of the public schools were also shut down or relocated since their premises were deemed old and unsafe to be used for the purposes of a school.

While the overall number of schools in the Emirate declined, over the same period, the total number of students in the Abu Dhabi Emirate continued to increase at a CAGR of 4.1% resulting in existing schools to operate at high utilisation levels.

However, ADEC facilitated villa schools with relocation or establishment of new schools by renting out public school buildings and providing school plots at subsidized rates. This indirectly helped parents as relocating schools did not need to incur market costs of acquiring school property which would translate to higher tuition fee.

Exhibit 2: Public & Private Schools in Abu Dhabi Emirate

Exhibit 3: Schools in Abu Dhabi Emirate by Region – 2013/14

Source: SCAD; Colliers International 2016

Source: SCAD 2015; Colliers International 2016

2008/09

500

450

400

350

300

250

200

150

100

50

0

2009/10 2010/11 2011/12 2012/13 2013/14

Number of

Schools

58%

42%

301 305 299 268 265 254

180 184 181 183 185 184

481 489 480 451 450 438

Private Schools Public Schools

52%227 Schools Abu Dhabi

Region

10%43 Schools

Western Region

168 Schools Al Ain Region

38%


Abu Dhabi Education Sector – Review & AnalysisDuring the academic year 2013/14, a total of 340,803 students were enrolled in schools in Abu Dhabi Emirate. Although there are more public schools than private schools, the private sector accommodates 63.0% of the enrolled students.

Over the last decade, private schools in the Emirate have become increasingly popular and not only expatriates but also an increasing number of Emirati families are preferring to send their children to private schools because are seen to students develop better English language skills and develop a more flexible skill set in private schools compared to public schools. Out of 150,000 Emirati

students, an estimated 52,000 or 34.7% Emirati students attend private schools in Abu Dhabi.

Statistics show that the private sector student enrolment has increased at a CAGR of 6.4% during academic years 2008/2009 to 2013/2014 as against the overall student enrolment CAGR of 4.1%. This has resulted in the private sector increasing its share from 56.4% to 63.0% over the same period.

The student population in private schools is more concentrated in the early education cycles than in later cycles which is due to young expatriate families moving to the UAE and expatriate students returning to their home countries for secondary education primarily due to considerations of cost and especially the eligibility to enroll into preferred universities.

All these factors present opportunities for operators and investors to invest in Abu Dhabi's lucrative education sector.

Exhibit 6: Students in Emirate of Abu Dhabi by Education Cycle – 2013/14Source: SCAD, ADEC 2015

Exhibit 4: Current Distribution: Public Vs Private Sector Schools - 2013/14Source: SCAD, ADEC 2015

42%

58%

184

254

Exhibit 5: Current Distribution: Public Vs Private Sector Students - 2013/14Source: SCAD , ADEC 2015

63%

37%126,216

214,587

12%

21%

37%Cycle 1 Kindergarten

Secondary

30%Cycle 2

45%Cycle 1

19%Kindergarten

12%Secondary

24%Cycle 2

PrivatePublic

PrivateSchools

PrivateSchools

PublicSchools

PublicSchools


Dubai Education Sector – Review & AnalysisDubai’s education sector is largely dominated by private sector operators with 169 private schools which enroll 90% of Dubai’s student population; making it one of the most privatised education systems in the world.

The public sector comprises 78 schools, enrolling only 10% of the student population as shown in the adjacent exhibits.

The growth of the private school sector in Dubai has been in accordance with its rapidly expanding population.

The 2014/15 academic year witnessed the opening of 11 new private schools in the Emirate.

Results of school inspections conducted by Dubai School Inspections Bureau (DSIB) show that the standard of education being provided by private schools has been continuously improving.

Exhibit 7: Public & Private Schools in DubaiSource: Dubai Statistics Center; Colliers International 2016

2010/11

146

78

224

2011/12

148

79

227

2012/13

153

77

230

2013/14

158

77

235

2014/15

169

78

247

PrivateSchool Sector

School SectorPublic


Dubai Education Sector – Review & AnalysisDuring the academic year 2014/15, a total of 284,481 students were enrolled in schools in Dubai. Private schools in the Dubai are becoming increasingly popular and are drawing an increasing percentage of the student going population. Moreover, with the passage of time Emirati parents are also preferring to send their children to private schools because students develop better English language skills and cultivate a more flexible skill set in private schools compared to public schools.

Statistics show that the private sector student enrolment has increased at a CAGR of 7.2% during academic years 2010/2011 to 2014/2015 as against the overall student enrolment CAGR of 6.6%.

On the other hand the public sector enrollment only increased at a CAGR of 2.4% during the same period.

Although, private schools comprise of 68% of total schools in Dubai, however, due to higher student strength / capacity, 90% of the students are enrolled in private schools in Dubai

It is important to highlight that the private student enrollment growth has surpassed population growth of 5.1% during the last 5 years.

Similar to Abu Dhabi, Dubai’s private school student population is more concentrated in junior grades compared to senior grades where approximately 60% of students enrolled within private schools are currently attending early education cycles (Kindergarten and Cycle 1), which is aligned with the demographic landscape identified across the Emirate mainly shaped by young expatriate families moving to the UAE and expatriate students returning to their home countries for secondary education primarily due to considerations of cost and especially the eligibility to enroll into preferred universities in their home countries.

Exhibit 10: Students in Dubai by Education Cycle – 2014/15Source: Dubai Statistics Center, KHDA

Exhibit 8: Current Distribution: Public Vs Private Sector Schools - 2014/15Source: Dubai Statistics Center, KHDA

68%

78

169

32%

Exhibit 9: Current Distribution: Public Vs Private Sector Students 2014/15Source: Dubai Statistics Center, KHDA

90%

10%

255,208

29,273

42%18%

15%

25%

Cycle 1

Kindergarten

Secondary

Cycle 2

PrivateSchools

PrivateSchools

PublicSchools

PublicSchools

39%

9%

22%

30%

Cycle 1

Kindergarten

Secondary

Cycle 2

Private Public


Demand for British Curriculum Schools in Abu Dhabi & DubaiOPPORTUNITIES & CHALLENGES

Although British nationals account for only 2% to 3% of the United Arab Emirates’ population, the British curriculum is among the top three most popular curricula offered by schools in the country.

This section of the white paper presents the challenges and opportunities for investors / operators who would like invest in this lucrative sector


UAE Demographic – Still going StrongThe population of the UAE is expected to surpass the 10 million mark in 2017, which is expected to increase to 12.75 millions by 2025 with an expected population growth rate of 2.9% as projected by the International Monetary Fund (IMF).

Colliers believe that the expanding population of the UAE will continue to feed demand for infrastructure, housing, healthcare, education and financial services. Jointly, the Emirates of Abu Dhabi and Dubai constitute more than two thirds (67%) of UAE'S population. The share of UAE nationals out of the total population currently stands at 16%. Dubai registers the highest recorded share of non-nationals (91%), whilst in Abu Dhabi expatriates account for 55% of the population.

UAE Population 2010 – 2025Source: IMF

Exhibit 11:

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

9.03 mil

9.30 mil

9.58 mil

9.86 mil

10.14 mil

10.44 mil

10.74 mil

11.05 mil

11.37 mil

11.70 mil

12.04 mil

12.39 mil

12.75 mil


Abu Dhabi and Dubai Demographic Growth – Still one of the highest in the world. • Dubai’s population stood at approximately 2.3 million

at the end of 2014, registering a CAGR of 6.5% for the period 2005 - 2014. Colliers International estimates that the population of Dubai is expected to reach 4.6 million by 2025, subject to it maintaining the current growth rate patterns. However, if the population growth rate dropped to CAGR of 5.1%, which was observed for the period 2010-2015, the expected population of Dubai to reach 4.0 million. During 2005 – 2009, just before the global financial crisis, Dubai’s population was growing at a CAGR of 13.3% due to boom in real estate sector.

• The daytime population of Dubai is much larger than the permanent population given the considerable number of workers who travel to Dubai to attend offices to avoid the high cost of housing in the Emirate. Acknowledging this phenomena, several real estate developers have planned and are undertaking projects to offer affordable housing which is expected to attract a significant number of residents from other Emirates to relocate to Dubai, mainly from Sharjah, over the next few years.

Existing and Projected Population of Dubai and Abu Dhabi - 2025

Exhibit 12:

Source: Colliers International 2016

Dubai Population

2014 = 2.3 million

Emirates of Abu Dhabi Population

2015 = 2.8 million

Abu Dhabi Region Population

2015 = 1.7 million

6.5%

7.3%

7.9%

5.9%

6.3%

4.6 Million

2025 Population at CAGR of

2025 Population at

CAGR of

2025 Population at

CAGR of

2025 Population at

CAGR of

2025 Population at

CAGR of

5.6 Million

3.7 Million

5.1%4.0 Million

4.0 Million

4.0 Million

2025 Population at

CAGR of

14

It is evident that most of such residents relocating belong to the mid-income segment of the population and are likely to drive demand for affordable schooling rather than for premium schools.

• The Emirate of Abu Dhabi’s population stood at approximately 2.8 million at the end of 2015, registering a CAGR of 7.3% for the period 2005 - 2015. Colliers International estimates that the population of Abu Dhabi may reach 5.6 million by 2025, subject to it maintaining the current growth patterns. However, if the population growth rate dropped to CAGR of 5.9% (which was observed between 2010-2015), the expected population of Emirate of Abu Dhabi to reach 4.9 million.

• By end of 2015 the population of Abu Dhabi Region was approximately 1.7 million, with a CAGR of 7.8% for the period between 2005 and 2015. Colliers International estimates that the population of Abu Dhabi Region is expected to reach 3.7 million by 2025, subject to it maintaining the current growth rate of 7.8%. However, if the population growth rate dropped to CAGR of 6.3% (which was observed between 2010-2015), the expected population of Abu Dhabi to reach 3.2 million.

Continuous growth in population in both Dubai and Abu Dhabi will continue to create demand for schools in both cities in the foreseeable future

Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International


High Prevalence of Generation X, Y & ZThe population of UAE, especially that of Abu Dhabi and Dubai predominantly consists of individuals that fall in Generation X (1965 – 1980), Generation Y (1981 – 2000) and Generation Z (2001 – present). This translates into a wide base of young families and children of school going age.

Compared to United Kingdom with 63.3% population belonging to Generation X, Y and Z, the share of Generation X, Y and Z in Dubai is 84.5% and in Abu Dhabi 88.2%, thus creating demand for schooling.

The progression of Generation Z population and the rise in the number of dependents of Generations X and Y both imply a growing population of school going age.

The expected growth and age profile of the population in Abu Dhabi and Dubai is expected to provide sustainable demand for education sector in Abu Dhabi and Dubai for short to medium term, however, as an impact of the recent drop in oil prices have led to many employers have started to curtail education allowances which directly affects parents' ability to afford schools. This is expected to lead to higher demand for affordable schools in future as students may be seen to move to cheaper schools in light of such developments.

Exhibit 13: Population Pyramid in UK, Abu Dhabi and DubaiSource: SCAD 2016, Colliers International, 2016

Baby Boomers

Silent Generation

Gen X

Gen Y

Gen Z

24.4%

12.3%

22.6%

21.3%

19.4%

POPULATION PYRAMID OF UK100+

95-99

90-94

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

600K 400K 200K 0 200K 400K 600K

Gen Y

Gen Z

34.6%

16.7%

POPULATION PYRAMID OF ABU DHABI

80+

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

Baby Boomers

Silent Generation

Gen X

10.8%

1.0%

37.0%

12% 6% 0% 6% 12%

POPULATION PYRAMID OF DUBAI75+

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

Baby Boomers

Silent Generation

Gen X

Gen Y

Gen Z

14.3%

1.2%

41.3%

27.6%

15.6%

15% 10% 5% 0% 5%

12.2% of total population

(2014)Students in Dubai

Dubai

13.9% of total population

(2013)Students in Abu Dhabi

Abu Dhabi


British Curriculum; not just for the BritishAs discussed earlier, the popularity of British curriculum schools rests not only due to presence of British Nationals in the UAE, since it remains a popular choice amongst number of other nationalities such as, Pakistanis, Indians and nationals from different Arab and Commonwealth Countries.

Although, British nationals make up only 2% to 3% of the total population of the UAE, British curriculum schools command a share of 33% and 22% of the total private school students in Dubai and Abu Dhabi respectively, evidencing the wider acceptance of the curriculum.

Statistics revealed that the Pakistani students constitute the highest proportion of students enrolled at British curriculum schools in Dubai, followed by Indians and British nationals (most of which are of Pakistani, Indian or Arab origin).

The proportion of Emirati students enrolled in private schools in UAE continues to grow amid an increasing preference of Emirati parents to enroll their children at private schools owing to considerations of quality. It is expected that considerable amount of such students will enroll at schools offering the British curriculum.

Exhibit 14: Estimated Breakdown of Population in the UAESource: Wikipedia 2016

Exhibit 15: Breakdown of Student Population in British Curriculum Schools in Dubai - 2014/15Source: KHDA 2016

Other Asian

Arabs

UAE

Westerners

United Kingdom

South Asia

45% to 50% 18% to 20%

2% to 3%

2% to 3% 12% to 15%

12% to 15%

UK

13%

USA

2%

Egypt

7%

Jordan

3%

UAE

6% Philippines

5%

Sri Lanka

3%

India16%

Pakistan17%

Others25%

Canada2%


SABIS & IB

Others

Others UK

Private MOE

SABIS & IBUSA

Private MOE

UK Indian

Indian USA

5.3% 7%

12.4% 33%

7.1% 5%18.3% 6%

38.5% 31%

18.3% 18%

Private Schools Breakdown by Curriculum - 2014/15

Private Schools Breakdown by Curriculum - 2013/14

Private Schools' Students Breakdown by Curriculum - 2013/14

Private Schools' Students Breakdown by Curriculum - 2013/14

Private MOE

Private MOE

USA USA

SABIS & IB

SABIS & IBOthers Others

Indian Indian

UK UK

22.9% 23%

23.9% 23.9%

3.2% 6.1%10.1% 6.4%

16% 17.9%

23.9% 22.7%

38% of the private schools in Dubai offer the UK curriculum with 33% of the private student population enrolled at these schools, the highest share of in terms both private schools and number of students when compared to any other curriculum.

This maybe attributed to the fact that majority of Dubai’s population is expatriate and transient in nature who prefer the UK curriculum due to ease of transferability since the UK curriculum is the most globalised curriculum with a central examination system.

In Abu Dhabi British Curriculum schools are second to US curriculum schools and constitute 23.9% of the private schools and 22.7% private student population in the Emirate. The popularity of US curriculum schools in Abu Dhabi is attributed to the fact that US curriculum schools tend to attract more Emirati students especially during the secondary cycle as it is found easier to cope with and allows for smooth transition to local universities as well as universities in USA. Other leading curricula include the Indian (CBSE) and MoE.

Dubai Abu Dhabi

British Curriculum - a popular choice in Dubai and Abu Dhabi

Exhibit 16: Exhibit 17:Source: KHDA 2015 Source: SCAD 2015


ChallengesOne of the key challenges faced while establishing quality schools in UAE is the high funding requirement. Typical cost of developing a school with a capacity of 1,800 - 2,000 students could range between GBP 47 million and GBP 60 million, provided that land is purchased upfront. In cases where land is leased, such development cost for a quality school could range between GBP 35 million to GBP 42 million (exclusive of finance costs).

Exhibit 18: Estimated Development Cost for a Typical British Curriculum School in UAESource: Colliers International 2016

CLYDE & CO OPINION - ACCESS TO LANDAvailability of land will be key to the success of a project. UAE based investors may have access to land, the local education regulator (KHDA in Dubai, ADEC in Abu Dhabi, MoE in the other Emirates) may be able to assist with locating land, and land owners or developers may be keen to have a school as part of their development. The cost of land, plot size, location (and the catchment area it is located in), transport access and infrastructure will all affect the viability of the new campus and whether the education regulator will grant permission for your school to use the land.

Land 40,000 sqm

12 million

17.6 million

25 million

30 million

6 million

7.5

million

4 million

47 million

5 million

60.1

million

BuildingBUA 25,000 sqm

Fit Outs & Other Costs

Pre-Operating Costs

Total Cost

Land ownership is a sensitive subject in the UAE, and there are currently restrictions on foreign rights of ownership. To date, most of the individual Emirates have issued legislation to designate specific investment zones in which Foreign Investors are entitled to own or acquire long leasehold interests over real estate. In some cases, these investment zones are free zones but in others, they exist outside free zone areas. Generally speaking, nationals of other Gulf Cooperation Council (GCC) countries have more extensive investment rights than Foreign Investors.

Rights in real estate are generally registrable with the relevant regulatory authority in each Emirate. In Dubai, for example, the Dubai Lands Department maintains a register and issues a certificate of ownership of land to purchasers. Where ownership interest in land is to be in the name of a non-GCC corporate entity, restrictions may apply in relation to the type of company that can be used (for example, in Dubai, use of a Jebel Ali Offshore Company is likely to be required).

The key legal interests which may be created in land in the UAE are as follows:

• Ownership: this is the highest interest recognised at law.

• Usufruct: a usufruct right gives the holder the entitlement to use the property for a period of up to 99 years. If a usufruct right has a duration of more than 10 years, the usufruct owner is entitled to assign the benefit of the right without the permission of the owner, which includes the right to mortgage the usufruct. This right is similar to a long leasehold.

• Musataha: a musataha is a right to occupy and develop land. A musataha is limited to a 50 year term (which is renewable by agreement of the parties). A musataha, with a duration of more than 10 years, may be assigned (and mortgaged) without the permission of the owner of the land. Musataha agreements are more common in Abu Dhabi, and ADEC school plots are offered on the basis of a Musataha.

Laws and practices relating to land within each of the Emirates change frequently. The legal implications of any arrangements relating to land should be carefully considered before any commitment is made.

Max><

Min


Funding OptionsDespite the fact that banks and other financial institutions actively seek investments within UAE's education sector, they are looking to limit their exposure by lending only to players with proven track records. British operators contemplating entry into UAE's market often struggle to secure 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 a bank's risk appetite which typically extends to a tenure that lasts between 5 – 7 years.

For first time entrants to UAE's market, especially British Schools who don’t have enough financial resources, or are unable to make significant financial commitments due to a variety of reasons ultimately end up searching for private investors to enter into a licensing and operating agreement with the investor under which they are entitled a management fee. However, some of the other options include, operators forming and owning the operating company (OpCo) and the investor investing in the land and property (PropCo), or creating a Joint Venture (JV) with an investor. The various options available to British Schools based on availability of funds are

• Outright Purchase of the Land• Long-term Lease of the Land• Land as Equity Investment by Landlord• Long-term Lease of the Land and Shell-n-Core

Structure from Landlord / Investor• Creating a JV with a Landlord / Investor in Equity

Partnership• Signing a Management Agreement with a Landlord /

Developer / Investor

However, each of these options have financial, operational and legal advantages and disadvantages and Operators should seek professional advice before entering into any such agreement.

CLYDE & CO OPINION - COMMON STRUCTURES FOR UAE PROJECTSThe decision as to how you will structure your UAE expansion will depend on a number of factors, such as whether external funding is required, the requirements of investors, the UK institution's knowledge of the jurisdiction and UAE law, regulations and customs (for example foreign ownership restrictions). Where external funding is obtained

from UAE investors, it is common to see the investor take ownership of the operating company as well as the land and premises. In this scenario the UK institution will enter into a licensing and operating agreement with the investor and be paid a management fee, without any capital expenditure on its part. There are, however, a number of alternative structures that can be considered, depending on the requirements of the investor, such as the UK institution owning the operating company and the investor owning the land and premises, or the UK institution and the investor entering into a joint venture. Each structure has advantages and disadvantages and it is important that legal advice from the UAE is sought.

CLYDE & CO OPINION - THE PROCESSThe process involved in expanding overseas can be unexpectedly time-consuming. Local laws, regulations and conditions in the UAE will bring new hurdles, as will contractors and consultants, who will usually operate differently. It will certainly be a challenge to set up overseas in a matter of months or years what it has taken possibly many decades to establish in the UK. The UK institution should therefore consider delegating authority to an individual or a committee who will be tasked with managing the expansion and who will report back to the board of directors.

CLYDE & CO OPINION - PROTECTION FOR THE UK INSTITUTIONThe UK institution will need to ensure that it retains control over decision making processes throughout the project, for both legal and reputational reasons. From a legal perspective, the UK institution’s name, brand and logos should be registered in the UAE and intellectual property will need to be licenced to the new company. From a reputational perspective, consideration will need to be had as to how to unravel the project if it is ultimately unsuccessful, enabling the institution to revoke the use of its intellectual property in the relevant territory. Further, the UK institution will want to maintain control over the standards of the project, ensuring any key decisions are only made with the approval of the UK institution.

When setting up the new company, the UK institution needs to consider how any money generated from the new company will be efficiently returned to the UK institution. The structure of the UK institution (whether a charity limited by guarantee or a CIO) will affect how any revenue is taxed, as will the chosen location of any holding company.

Attracting and Retaining Quality ResourcesOne of the major challenges facing operators in Dubai and Abu Dhabi is the ability to attract and retain quality staff to deliver on the promise of quality educational services. Operators desperate to recruit appropriately qualified staff have prompted a trend of poaching teachers and management staff from competitors.

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

CLYDE & CO OPINION - EMPLOYEESVisas and sponsorship: The majority of teaching staff in private schools in the UAE consist of non-UAE nationals. Each non-GCC national who works in the UAE must hold a UAE residence visa and a UAE work permit. A work permit only permits an individual to work for his employer from his employer's place of work; this makes the use of supply or peripatetic teachers, for example, problematic.

Employment Contracts: The majority of private schools in the UAE will be required to issue an employment contract to employees in a form prescribed by the MoE (although for

schools operating within one of the UAE's free zones, the contract will be in a form prescribed by the relevant free zone authority).

Employment contracts in the UAE may be issued for an unlimited or limited duration. In private schools, the use of limited term contracts is extremely prevalent, particularly for teaching staff. The term of the contract will generally be linked to the school calendar. Both the prescribed form MoE contract and the ADEC Regulations seek to restrict the periods in which the employment relationship may be terminated to reduce teaching staff attrition and the resulting disruption to teaching schedules part way through the academic year.

Regulation: KHDA in Dubai and ADEC in Abu Dhabi have implemented various rules and regulations which are also relevant to the employment of staff in private schools. For example, the recruitment of staff must be approved by the relevant regulator and such approval will not be granted unless the proposed member of staff meets certain academic and experience criteria. The ADEC Regulations also contain provisions relating to the terms and conditions which should be included in employment contracts (particularly for teaching staff) and require all private schools in Abu Dhabi to put in place an Employee Manual containing certain prescribed provisions.

Law: the UAE Labour Law provides a framework of minimum employee entitlements, including sick leave and pay, annual leave, notice periods, disciplinary procedures and applicable health and safety measures. It applies to all workers in the UAE, other than employees working in one of the financial free zones and some others such as domestic staff and government employees.



The Market Gap?Based on current population growth rate and share of British Curriculum Schools in Dubai and Abu Dhabi, by 2025, it is estimated that Dubai will require an additional 166,000 to 224,000 seats in private education sector out of which approximately 55,000 to 74,000 will be for British Curriculum Schools. Whereas, the Emirate of Abu Dhabi is estimated to require an additional 172,000 to 230,000 seats in private education sector out of which approximately 39,000 to 52,000 will be for British Curriculum Schools. However, the Abu Dhabi Region is estimated to require an additional 130,000 to 173,000 seats in private schools out of which approximately 30,000 to 39,000 will be for British curriculum schools.

With an average size of 1,500 students per school, Dubai requires an estimated 37 to 49 new British curriculum schools by 2025 or roughly three to five schools every year.

With an average size of 1,300 students per school, the Emirate of Abu Dhabi requires an estimated 30 to 40 new British curriculum schools by 2025 or roughly three to four schools every year.

AffordabilitySo far all the British schools which have recently entered the UAE market, i.e., Repton (2007), Brighton (2011) and Cranleigh (2014) and Kent (2016) are targeting high-income segment charging annual tuition fees ranging from GBP 8,000 to GBP 20,000 per annum. Observing the current market landscape, Colliers is of the opinion that operators should aim to establish affordable British curriculum schools charging tuition fees in the range of GBP 6,000 to GBP 12,000 per annum.

In Colliers' experience, operators / investors can achieve more or less the same returns by investing in the affordable schools when compared to investment in premium schools. This is can be attributed to several factors such as reduced capital investment required to establish affordable schools, with relatively faster ramp-up and higher utilisation rates, higher number of students per class etc. In fact, demand for affordable schools is not only restricted to Dubai and Abu Dhabi, the main cities of the UAE, but also exists in other Emirates.

Exhibit 19: Estimated Demand for Student Seats at British Curriculum Schools in Dubai by 2025Source: Colliers International 2016

Exhibit 20: Estimated Demand for Student Seats at British Curriculum Schools in Abu Dhabi Emirate by 2025Source: Colliers International 2016

ConclusionThe private education sector market in UAE offers an attractive opportunity to investors and operators, especially those intending to offer the British curriculum. However, it is imperative to commit adequate time and resources to understand and gauge key financial, operational and legal risks associated with the sector prior to venturing in the market.

Both, Colliers International and Clyde & Co have a successful track record of assisting a number of private schools to venture into or expand their operations across UAE and the GCC and would be glad to assist interested parties in the future as well.

16 to 21 Schools with

1500 Students per school

by 2020


1500 Students per

school by 2025

55,000 to 74,000

Student Seats in 2025

ADDITIONAL DEMAND

ADDITIONAL SCHOOLS

139,000 to 158,000


108,000 to 115,000


85,000 Student Seats in

2014/15

24,000 to 31,000


ADDITIONAL DEMAND

ADDITIONAL SCHOOLS


1300 Students per school

by 2020


1300 Students per

school by 2025

39,000 to 52,000


90,000 to 103,000


67,000 to 72,000


51,000 Student Seats in

2014/15

16,500 to 21,500


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• British Curriculum• American Curriculum• French Curriculum• Indian Curriculum• German Curriculum

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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

DisclaimerThe 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.

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Ian AlbertRegional Director | Valuations & Advisory | [email protected]

Mansoor AhmedDirector | Head of Development Solutions | MENAHealthcare | Education | Public Private Partnership (PPP)[email protected]

Shehzad JamalSenior ManagerHealthcare | Education | Public Private Partnership (PPP)[email protected]

Salman KhanAssociate ManagerHealthcare | Education | Public Private Partnership (PPP)[email protected]

Colliers International | MENA RegionDubai | United Arab Emirates+971 4 453 7400


About Colliers InternationalColliers International is a global leader in commercial real estate services, with over 16,000 professionals operating out of more than 554 offices in 66 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 provided leading advisory services through its regional offices since 1996. Colliers International currently has 5 Corporate Offices in Dubai, Abu Dhabi, Riyadh, Jeddah, and Egypt.

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Documents

Demand for British Schools in Dubai and Abu Dhabi October 2016 · Demand for British Schools in Dubai and Abu Dhabi | October 2016 | Colliers International 3 Introduction In September