Educational real estate: a promising new segment with the test of current shocks

As thematic funds take off, the real estate industry is splitting into several popular segments among investors. If there are already investments available in healthcare or business real estate, educational real estate has only recently emerged and is still unknown to the general public despite many advantages.

A segment stimulated by the current environment and rich in opportunities

Learning is gaining ground in France, and the pandemic has not slowed this trend. During this period, there was an increase of 60,000 students in the higher education system. With this, a clear performance of private institutions in terms of numbers, up to 5-7% on average, far ahead of public education, around 1-2% on average. As a corollary of this progression, private higher education is part of a form of competition that requires schools to have attractive facilities at the forefront of technology. Most large business schools are also subject to plans for relocating or renovating/transforming their infrastructure, in particular to make the digital transition and make their facilities “greener”

Needs are also emerging under the impetus of the health crisis, along with rising technical standards. These require, in fact, an adaptation to the new energy demands and to the new forms of teaching. Videoconferencing course development, for example, involves transforming classrooms to equip them with audio and video devices.

Likewise, we see that face-to-face courses have started to focus on group work, hence the need for new low-capacity spaces. Infrastructure needs are therefore numerous and all the more urgent as they become decisive for the success of school groups.

A solid and resilient investment universe

This subsector offers an original form of diversification in relation to office real estate, which represents the usual investment segment, and from which more and more SCPIs are trying to get out. A choice all the more relevant as educational real estate is disconnected from economic cycles and thus provides resilience in the face of exogenous shocks. In fact, the rents of an educational structure are insured throughout the year, since the establishments collect the fees at the beginning of the year and thus have the necessary money. This results in a certain financial sustainability as well as an anticipated and therefore reassuring cyclicality for investors. Students, in turn, benefit from aids that guarantee their ability to pay: scholarships, loans, work-study programs, etc.

In addition, these investments are not indexed to raw material (or energy) prices and continue to operate even in the event of a crisis in these markets. These characteristics allowed institutions to ensure their activity during the Covid-19 crisis and under the impact of long-term inflation.

This segment promises many opportunities as it grows as we see a growing desire to establish clusters of institutions to promote synergies within the same campus. Some groups are forming the project to build multi-brand campuses, less specialized than current parks, but likely to attract more student flows. Thus, this sector promises to be dynamic, often benefiting from the support of local authorities and, therefore, from long-term perspectives.

An investment universe with high ESG value

Investing in educational assets means contributing to quality facilities that offer the best learning conditions for students and promote their academic success. As mentioned above, higher education has opened up to a wide audience of different social categories, which now makes it a place of inclusion and training for all. A reality that is, in fact, controlled by examining indicators such as the rate of scholarship holders, the employability rate and the various labels and accreditations obtained. Investment conditions can then be adjusted through the prism of priority commitments for buyers: diversity rate, international openness, school governance, ecological components of facilities, etc. This without forgetting that investors have the right of inspection and decision-making in the management of the establishment, allowing them to influence it according to their convictions.

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