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Days of high returns numbered for investors in Dubai’s schools

Navin Valrani, CEO of The Arcadia School, highlights high capital investment requirements and steep debt costs as challenges for new entrants to the market Wikimedia/Creative Commons
Navin Valrani, CEO of The Arcadia School, highlights high capital investment requirements and steep debt costs as challenges for new entrants to the market
  • Arcadia boss points to steep costs
  • More than 200 private schools
  • Neighbouring markets offer opportunity

Dubai’s private school market, once a goldmine for investors, is no longer yielding the lucrative double-digit returns it used to, the chief executive of a leading school operator has said.

Navin Valrani, CEO of The Arcadia School, told AGBI new investors considering the emirate must tackle significant entry barriers, escalating costs and an increasingly mature market.

He warned that the emirate is crowded with more than 200 private schools from large and global operators, making the market less penetrable than it appears.

“Dubai is the world’s most competitive city for private independent schools,” he said.

“It is no longer feasible to [expect] double-digit returns on total assets.”

Valrani pointed to high capital investment requirements and steep debt costs as significant challenges for new entrants.

He noted that standards for school infrastructure and amenities are also continually rising.

Accessories, Bag, Handbag Private schools in Dubai compete to offer excellent facilities: pupils Arcadia School have access to climbing walls and swimming poolsArcadia School
Private schools in Dubai compete to offer excellent facilities: pupils at Arcadia School have access to climbing walls and swimming pools

“The early days of renting a school building and turning it around with relatively little investment are gone,” he said.

Facilities at Arcadia’s schools, for example, feature climbing walls, multiple swimming pools and extensive outdoor spaces, he said.

Valrani pointed out that profitability, traditionally attributed to increasing enrolments tied to population growth, is now more closely correlated with GDP growth. Nominal GDP per capita in the UAE is forecast to grow nearly 4 percent to almost $54,000 this year.

He said the excess school seats created since 2016 are gradually being filled, but the market does not suffer from an oversupply.

Dubai’s private schools recorded the highest-ever increase in enrolment in 2023, exceeding 365,000 students — a 12 percent rise, accounting for more than 39,000 pupils.

“After interest, after tax, you’re talking about [net profit] levels that are not as lucrative as they used to be,” he said. 

“The real test for schools is when growth rates do not increase at 12 percent a year – when they’re back down to more reasonable numbers, like 3 to 4 percent – that’s when you’ll be able to tell which school operators are still standing.”

Dubai’s education regulator allows limited school fee increases tied to performance, further complicating financial strategies for operators.

According to a Markwide Research report from April, schools in Dubai are battling for enrolments, facing pricing pressures and the need to differentiate themselves to attract pupils. 

Sajida Shroff, CEO at Dubai-based education investment and advisory firm Altamont Group, pointed to the cyclical nature of Dubai’s education sector. 

“While the Dubai private education market is flourishing, with certain schools maintaining their waitlists and double-digit returns, market trends indicate that generally returns are settling to single digits after a significant post-Covid growth spurt,” she said.

Shroff noted increased interest from international backers in both brownfield and greenfield opportunities, although enthusiasm for investing in individual schools has waned in favour of funding larger networks to pursue consolidation and potential IPOs.

“There were many schools in distress during and immediately post-Covid,” she said. “However, that trend is no longer so prevalent as acquisition, consolidation [or] repurposing occurred at that point.”

Demand in the market

Ashwin Assomull, partner and founding member of the global education practice at LEK Consulting, who is based in Dubai, said the UAE is an attractive market for M&A and greenfield development, driven by a clear regulatory framework and growing demand for high-quality international K-12 education.

K-12 refers to the system of education from kindergarten through to 12th grade, typically covering primary and secondary schooling

In addition to Dubai, cities such as Abu Dhabi, Sharjah and Al Ain, as well as smaller markets like Kuwait, Bahrain and Oman, present viable opportunities for investment in education, Assomull said, underscoring the region’s appeal for K-12 operators.

According to analyst IndustryArc, the Mena education sector is forecast to be worth $175 billion by 2027, with a compound annual growth rate of 8.5 percent from 2022.

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