The drivers of growth in the global education market remain robust, with demand for quality international school places generally outstripping supply in the emerging markets. In addition to the historic and forecast strength of the market, we identify six important benefits of investing in international schools.
Low Risk – investing in the education sector is low risk, provided that a school operates at a quality level to suit its target market. Under these conditions, the investment is as close to being recession-proof as can be achieved – removing children from school is a last resort for parents, who will cut household expenditure in other areas before reviewing their spend on education.
Long Term Revenue Visibility – parents rarely change their child’s school mid-stream. Schools, therefore, provide a predictable, long-term customer base with only one key transition between junior and senior school. This results in a reliable, multi-year revenue outlook with a single point of acquisition.
Prices Grow Faster than Inflation – fee increases tend to rise faster than local inflation figures. In contrast, teacher salaries – which are the largest cost driver in schools – typically grow in line with inflation. This differential results in improving returns for investors over and above other sectors.
Positive Cashflow and Security – schools generate positive cashflow because they collect fees in advance and are often profitable within three years of operation. Profit margins vary depending on the size of school but a good, 1800-pupil, K-12 school should generate profit margins of between 20 to 40%. The key costs involved are the rent for the campus and salaries/benefits for international teaching staff. Developers can expect competitive commercial yields and the attractive proposition of a single long-term tenant.
Halo Effect – the costs of building a school vary subject to specification, but construction for a premium school is typically in the region of US$20 to $30 million. Developers willing to build a school and provide a long lease are able to capitalize on long-term, low-risk rental yields. Additionally, local residential prices will rise and property will sell more quickly due to the halo effect provided by a quality international school in the community. This encourages community developers to invest in schools themselves.
Social Responsibility – by improving a country’s educational infrastructure, developers, corporate groups and high net-worth individuals provide socially responsible investment into the country’s long-term global competitive position.