Huge demand continues for property for independent send school provision, says Christie & Co report

The report begins with an analysis of leasehold versus freehold childcare and education business sales. The proportion of leasehold sales increased in the first six months of 2024, with the split in H1 2024 sitting at 78 per cent leasehold and 22 per cent freehold, up from 67 per cent and 33 per cent respectively in 2023. There are a number of factors which contributed to this, including an increase in the number of sellers choosing to retain their properties and enjoy a rental income stream. With the cost of capital having increased, some buyers also prefer to take on a new lease rather than acquiring the underlying freehold interest in the property which, in some locations, would command a substantial expense.

INDEPENDENT SCHOOLS: INTERNATIONAL, DAY & BOARDING

During 2024, in the lead-up to the General Election and off the back of the Labour Party’s pledge to end the tax break and charge VAT on school fees, while there has been activity via mergers and schools transferring in ownership, buyers have been incredibly selective in making acquisitions and the degree of market activity in the UK has been largely subdued. To a degree, this has mainly been due to some buyers’ nervousness and uncertainty around the potential change in UK Government and what the direct impact of that will be on independent schools. While some may weather the storm, others will be less fortunate but, with the forward-looking outcomes difficult to ascertain at this stage, buyers have been cautious.

In recent years, the makeup of the independent school sector has changed. There are circa 2,420 independent schools in the UK, educating 7 per cent (circa 625,000) of all children in the UK (Source: Department for Education), and the number of independent special schools has steadily increased, now making up 58 per cent of the sector compared with 45 per cent in 2019 (Source: Gov.uk 2023). With the new Government now in place, the market is wary as to how the potential implementation of VAT could change the current landscape. With rising costs and an ever-growing competitive market, buyer appetite is fairly subdued for operational schools that have seen pupil numbers decline steadily over recent years, often resulting in the merging of year groups, evidencing to buyers that there is a sign of distress and risk to longer-term sustainability. The market is, however, much more positive for better-performing independent schools with large capacities.

The Independent Schools Council (ISC)’s annual school census results show an annual average fee increase of 8 per cent in 2024, in line with inflation, with the majority of day schools charging between £3,000 and £6,000 per term. Over a third of all ISC pupils receive some type of fee assistance. The average means-tested bursary was worth £12,909 per annum, an increase of 9.3 per cent compared with last year, showing a continuing trend in schools to support more disadvantaged families in accessing high-quality education. While schools are inspected by both the Independent Schools Inspectorate (ISI) and Ofsted, Ofsted alone judged 75 per cent of non-associated schools as ‘Good’ or ‘Outstanding’ as of 31 August 2023. This is the same as 2022 which follows a period of consistent improvement since 2017, when they judged 68 per cent as ‘Good’ or ‘Outstanding’. Since 31 August 2022, 65 schools that Ofsted had previously inspected have closed or left the remit. In market terms, schools with a track record of positive regulatory outcomes, and those that evidence having ‘significant strengths’, as determined by the regulator, are frequently more appealing to parents and buyers alike in comparison with schools with less favourable inspection outcomes. Desirability will impact both parents' choices and the price that buyers will be willing to pay.

INDEPENDENT SEND SCHOOLS: DAY & RESIDENTIAL PROVISION

In the first six months of 2024, Christie & Co saw incredibly high demand from buyers for properties that would lend themselves to SEND school provision, with sales primarily comprising vacant former preparatory school sites. Albeit buyers have been keen to look at a wide range of properties available to be bought with vacant possession, from former hotels and care homes, through to former community assets such as libraries. Buyers comprise existing operators looking for growth and new entrants to the market, keen to set up and supply services in an attempt to aid in the acute surge in demand for suitable SEND placements and services.

The SEND schools sector continues to grow due to the increasing demand for suitable settings that support the needs of children who are unable to access mainstream education and/or suitable residential provision.

Local authorities in England continue to sign up for Safety Valve agreements, which would see them receive extra funding from the Government as they agree to ‘manage’ their high-needs SEND funding requirements in ways that the DfE requires. This can include reducing the number of “inappropriate referrals” and EHCPs awarded, along with targets to transfer children with EHCPs into mainstream schools. Some councils are facing legal challenges over these agreements, with three potential judicial reviews being commissioned.

Despite this, the rising demand for SEND services, which has fuelled heightened demand from providers for suitable properties to convert into SEND spaces, shows no sign of abating. Across the market, there are concerns that the Safety Valve agreements are putting the education and well-being of children and young people with SEND at risk. SEND advocates hope that the new Government will prioritise needs by ending the programme and injecting sufficient capital so that every child and young person has the opportunity to access the education they need.

THE FUNDING LANDSCAPE

A recent Christie Finance sentiment survey revealed that 86 per cent of funders/banks surveyed have a positive outlook for the year ahead. Christie Finance says that, whilst many lenders view the childcare sector as a worthwhile funding opportunity, their willingness to support operators is largely dependent on factors such as occupancy levels, sustained profitability over an extended period, and a secure regulatory framework.

Christie Finance has also witnessed a 50 per cent increase in funding queries in the last 12 months. Enquiries related to first-time buyers looking to acquire a setting, experienced operators looking to buy additional nurseries to expand their groups, as well as businesses purchasing assets, completing refits and fulfilling their cashflow needs. Many groups in the sector have been looking to expand rapidly across all parts of the UK, resulting in operators dipping into cash reserves or looking for alternative funding options.

Commenting on the SEND education market, Richard Green, Director & Lead Valuer at Christie & Co, says, “We expect the positive market trends that we saw in the first half of 2024 to continue in the second half of the year, with good levels of buyer demand as the vital need for children’s services across the UK remains.”

Commenting on the Independent schools, Richard Green, Director & Lead Valuer at Christie & Co, “The marketplace in the first half of the year was largely subdued due to the impending election and the impact that a new government might have on the VAT status of independent schools. Moving into the second half of the year, we envisage a degree of market uncertainty as to how purchasers and vendors react to the new policies that are expected of our new Labour government. This could impact the market for the next few years, though it remains to be seen.”

For the full Childcare & Education: Market Insight Report 2024, visit: https://www.christie.com/news-resources/publications/childcare-education-market-insight-report-2024/   

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For further information on this press release, contact:
Phoebe Burrows, Associate Director – Corporate Communications
P: 07540 063 598 or E: phoebe.burrows@christie.com

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