With AED6.1 billion (US$1.63 billion) in revenue from private school tuition fees generating 1.7% of Dubai's GDP, the private school market remains one of the most attractive markets in the world. During the 2015/16 academic year, a total of 252 schools existed in Dubai, providing education to around 298,000 students, out of which 265,000 (90%) were enrolled in private schools.
Private schools have witnessed a growth of 6.4% in the last five years compared to only 1.7% by public schools. 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. At present, 58% of Emirati children go to private schools in Dubai.
Dubai's private school student population is more concentrated in junior grades compared to senior grades where approximately 63% of students enrolled within private schools currently attend early education cycles (Kindergarten and Cycle 1) and only 13% are enrolled in secondary grades. This is aligned with the demographic landscape, which is mainly shaped by young expatriate families moving to the UAE and expatriate students returning to their home countries for secondary education. The British curriculum remains the most popular curriculum with 38% of private schools in Dubai offering the UK curriculum and 32% 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.
THE MARKET GAP
So do we need more schools in Dubai or not? Or do a number of schools face closure? The answer is yes, we do need more schools in Dubai, and yes, some schools do face closure not due to lack of demand, but as result of low quality and lack of operational and financial management. At present Dubai's private sector capacity is 298,000 seats with a very healthy occupancy level of 89% (in 2015/16). Based on the current population growth rate of 5.1% per annum, the total number of seats are expected to increase to around 437,500 by 2025/2026, thus needing an additional 140,000 new student seats by the 2025/2026 academic year.
Considering market dynamics & average school capacity the 140,000 new seats by 2025/2026 translates into roughly 91 new schools.
With the economic downturn, the key to success for the private schools will be affordability in the education sector. Most of the international, and even some of the local, branded schools target the high income segment in Dubai, with annual fees ranging from AED 50,000 ($13,600) per annum to over AED 100,000 ($27,235) per annum. However, based on the latest figures issued by KHDA for 2015/16, the majority of students (60.7% of total students) pay less then AED 20,000 ($5447) per annum.
To analyse how much tuition fees parents can afford to pay at various income levels, Colliers relied upon the Dubai Statistical Centre data, which provides various income quartiles and how much each income quartile spend on education and compared it with the prevailing tuition fees charged by different categories of schools in Dubai.
In Dubai 57% of expatriate households earns less than AED 300,000 ($81,706) per annum and spend 4% to 10% of their total household income on their children's education, translating into around AED 12,500 ($3404) per annum on education expenses. Compared to that, only 12% of Emirati households in Dubai earn less then AED 300,000 per annum and spend 2% to 3% of their total household income on their children's education, translating to only around AED 4,200 ($1143) per annum on education expenses, indicating that they mostly send their children to public schools.
While another 35% of expatriate households in Dubai earn between AED 300,000 ($81,706) and AED 700,000 ($190,647)per annum, they spend 10% to 12% of their total household income on education, translating into around AED 53,000 ($14,434) per annum on education expenses. Compared to that, 38% of Emirati households in Dubai earn between AED 300,000 and AED 700,000 per annum and they spend 3% to 5% of their total household income on education translating into around AED 22,000 ($5991) per annum on education expenses, again indicating that they mostly send their children to public schools or more affordable private schools.
Only 9% of expatriate households in Dubai earn over AED 700,000 ($190,647) per annum and spend 6% to 12% of their total household income on education, translating into around AED 85,000 (23,150) per annum on education expenses. Compared to that, 50% of Emirati households in Dubai earn over AED 700,000 per annum and they spend 3% to 5% of their total household income on education translating into only around AED 42,000 ($11,438) per annum on education expenses, again indicating that they either send their children to public schools or more affordable private schools.
The above figures indicate total spend on education by a household, and not per child. With families having multiple children, the education spend per child further decreases.
The affordability for tuition fees varies for different curriculum is Dubai. With MOE and Indian and other similar curriculum on the lower tuition fees side and British, American and IB on the upper end of the tuition scale.
Based on Colliers analysis, in the majority of the cases, families sending their children to Indian, MOE and similar curriculum schools can spend a maximum of up to AED 20,000 ($5447) per annum, and between AED 20,000 to AED 50,000 ($13,617) per annum for British, American and IB. There are and always will be premium schools charging higher fees. However, students who can afford to pay such fees are limited, and observing the current market landscape, operators should aim to establish affordable schools for Indian, MOE and similar curriculum charging a maximum of AED 20,000 per annum, and American and IB schools that charge between AED 20,000 to AED 50,000 per annum.
Based on Colliers' experience, operators and investors can achieve more or less the same returns by investing in affordable schools when compared to investment in premium schools. This 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, but also exists in other Emirates.
In summary, the private education sector in Dubai still offers lucrative opportunities for investors and operators in medium to long term. However, it also possesses a number of challenges, such as high capital cost, lack of quality teaching staff, attracting and retaining quality staff and funding constraints for new entrants.
Author: Mansoor Ahmed, director of healthcare, education and PPP, Colliers International