A learning curve: How property can alleviate financial difficulties in the education sector

Richard Rees

The UK’s education sector – both state and private – is arguably experiencing the most significant financial crisis in its history. Today the entire sector; universities, further education colleges and schools, face an array of challenges.

A number of these challenges are inevitably outside the remit of the real estate industry, however the scale of fiscal difficulties has brought into focus how these institutions can best use their property assets productively for the long term. Looking at these more strategically may unlock at least partial solutions to some of their problems.

Given a strong education system underpins so many facets of what makes a prosperous and happy country – from better health outcomes, to economic growth and stronger communities, and is a major UK selling point, contributing to our global competitiveness – arguably real estate professionals also have a social responsibility to help education providers overcome their issues.

While the ultimate causes of difficulties may be varied across the sector – whether they be policy changes, business rate increases, reduced budgets or changing demographics leading to decreasing student numbers – ultimately the symptom is uniform across the UK education sector: a lack of funding and a need to raise income. An institution’s initial reaction when contemplating real estate in this context may therefore be to look at selling property or land assets in order to raise capital.

While this may be the best option in some circumstances, and help generate some income in the short-term, in many situations simply disposing of assets in a piecemeal fashion, without reviewing them in the wider strategic context, doesn’t deliver a sustainable long-term solution. Looking at operating the core education estate more effectively and efficiently is more likely to yield a better, sustainable return and, importantly, improve the property offer for students and academics alike, while opening up opportunities to generate new liquidity, potentially forming new long-term partnerships.

The key thing any education institution should therefore commit to is a strategic review of its estate, taking a helicopter view of its condition and how it operates, including everything from classrooms and lecture theatres, to administrative buildings and offices, staff and student accommodation (where applicable), sports and arts facilities, and any other assets or land which is owned or leased. Each asset should be examined on the basis of its challenges and opportunities.

Some of the challenges identified are likely to be within the core estate – the assets which deliver key education functions – and finding solutions to address and improve these will therefore be top priority in order to provide the exceptional learning experience that students, parents and staff expect. Any real estate decisions should therefore be assessed by their ability to meet these priorities, with solutions potentially coming from how other property assets outside the core estate are managed and operated.

These assets may present opportunities to consolidate activities to generate efficiencies, be reconfigured or rightsized for alternative education purposes, utilised to generate extra income from non-education uses (conferences and weddings are fairly well established, but there’s growth in demand for using education estates as filming locations, or even their land for food and music festivals, for example), or – possibly as a last resort – marketed for sale. Universities especially, may
identify opportunities to partner more with developers and investors to deliver capital projects beyond student housing to consider alternative delivery models for core assets. Partnering, in many different forms, may see greater dialogue between respective institutions, local authorities and wider businesses, leading to stronger knowledge hubs.

While this strategic review process can be time-consuming, the clear priorities it should produce will enable more robust decision-making and make it easier to achieve the support of students, teaching and administrative staff, trustees, management boards, governors, parents, and other stakeholders. These parties will see that decisions have been reached after a comprehensive analysis of all the options, and are therefore more likely to positively engage with any forthcoming changes.

Ultimately, understanding the workings of an entire education estate should put an institution in a better and more resilient position for the future.

More broadly, recognising the civic role and importance of our education establishments will place them at the heart of achieving diverse, people-focused real estate, where community, accessibility and enterprise are at the forefront of sustainable long-term change. This will filter through to supporting economic productivity across our towns and cities. Already, the wider radial and economic resonance of some institutions embarking on new strategies and progressive partnerships is
beginning to shine through and deliver new places, highlighting education as the fulcrum for propelling economic productivity and underwriting wider opportunities for prosperity.

Richard Rees is managing director at Savills UK