Private schools that have historically enjoyed strong investment remain well-placed to weather the storm of the cost of living crisis, with high inflation and interest rates, according to a report published by business property adviser, Christie & Co.

There has also been a continued recovery of international student numbers which is encouraging for the sector.

However, for smaller schools struggling to maintain occupancy levels, there was financial distress last year, which, in some cases, resulted in closures, and the sector is braced for 20% VAT to be imposed if the Labour Party wins the next general election.

While the outlook for independent education remains broadly stable, subject to current political policies prevailing, a crucial factor in the success of independent schools is in the investment and maintenance of the properties to continue to make them attractive to pupils and prospective parents.

Pricing

Last year, an overall combination of economic shifts, funding challenges, cost pressures, margin erosion and the increased cost of capital all contributed to a market reset, resulting in a 3.3% decrease in pricing across childcare and education businesses, which follows some aggressive positive index movements in prior years.

Market sentiment

As part of its annual sentiment survey, Christie & Co surveyed childcare and education professionals across the country to gather their views on the year ahead. Encouragingly, 44% of people said that they are positive about the year ahead – an 11% rise on survey figures reported in the previous year – while just 14% feel negative. When asked about their sale and acquisition plans in 2024, 71% said they are planning to buy and/or sell this year.

The finance landscape

In 2023, Christie Finance witnessed a 26% rise in the number of childcare and education finance instructions, with a significant increase in leasehold operators seeking funding to purchase the freehold premises, ultimately increasing the value of the business that can be utilised as a springboard to aid future expansion.

Market predictions

In 2024, Christie & Co expects:

• Demand will remain for larger independent schools – those with capacity for more than 1,000 pupils – and ones that evidence strong trading performances.
• Further provincial schools will close, notably schools with smaller capacities in less affluent areas.
• Mainstream independent schools may see a slight stagnation of market activity in the lead-up to the general election as buyers proceed with caution amid a degree of uncertainty created by the Labour Party’s VAT on school fees pledge.

Courteney Donaldson, managing director, childcare and education at Christie & Co, said: “2023 proved to be an exceptionally busy year for our valuation and educational consultancy teams with their expertise and services being called upon by a wide range of banks, lenders and investors seeking formal advice for refinancing and secured lending purposes.

“While the year saw a number of notable transactions, overall market activity for operational assets remained relatively subdued for schools with smaller student capacities. The differential between schools that are doing well, and those that are financially struggling, appeared to widen further throughout the year, and we continued to see long-established schools having to make difficult closure decisions. Where school mergers or takeovers were not possible due to financial sustainability challenges, there was no shortage of buyers for those schools when being sold with vacant possession, with the greatest demand coming from SEND education providers and other types of buyers having regard to alternative uses.”

Read the full report here