Urbis Think Tank
Major changes in higher education models deliver impacts for property sector
Australia’s higher education and vocational training markets are an important component of the national economy, generating over $33bn in revenue, including nearly $6bn in exports. However, they are in the midst of significant change – primarily as a result of government reforms, and the stronger Australian dollar. Given the substantial land use by many of these institutions, these changes have notable implications for property.
Five years of major change in the higher education sector
The tertiary education sector is heavily funded and regulated by government, so an appreciation of the outlook requires a brief understanding of the key political and regulatory changes to the sector. In rough chronological order, these are:
- In 2008, the Bradley Review of higher education was initiated by the Federal Government
- In 2009, The Federal Government responded to the Bradley Review with a commitment of an additional $5.4bn funding over 4 years
- The Government response aims to increase the proportion of 25-34 year olds who will hold a qualification at bachelor level or above from the current 32% to 40% by 2025. This will produce around 217,000 additional graduates by 2025
- In 2007, the Australian Quality Training Framework (AQTF) was introduced to set standards for the vocational education and training sector. This was substantially reformed in 2009 in response to several issues that impacted on international students
- In 2010, the Federal Government commenced a major reform agenda
- In 2010, the Federal Government implemented major changes to the skilled migration program, to focus on high demand occupations such as doctors, nurses, mining engineers, and IT specialists, and cut down on applicants such as unsponsored cooks
- In 2011, the National VET (Vocational Education and Training) regulator commenced operations and now oversees the vocational sector, although there is still considerable cross-over with some State bodies
- From 2012, the major shift to a student centred funding model commenced. This switches funding to a demand-driven system, and removes enrolment caps. The money will now follow the student demand
- Victorian and SA governments opened up their vocational training systems to market-based competition in 2012
- Significant cuts in the Victorian 2012-13 Budget for VET
In addition, the appreciation of the Australian dollar has had a major impact on international students. Since the GFC, the Australian dollar has increased from around 35 Indian rupees to nearly 60Rs, causing the cost of Australian education for Indian students to nearly double. With Indian students the second largest international market for Australian universities and higher education, this is a marked shift.
These changes have had major impacts on the tertiary education sector. The most immediate impact has been the decline in overseas student numbers and revenue. The TAFE and vocational sector has suffered a loss of around 12% in export earnings in 2012, which has caused private educational operators to become very cautious. This is a seismic shift from the 50% export growth achieved in the boom period from 2006 to 2008.
Universities have also been forced to respond, by focussing their business plans. This has included the preparation of mission-based compacts with the Government in order to secure their funding, resulting in increasing specialisation and efficiency. The Excellence in Research for Australia (ERA) ranking measure is focusing institutions on being world class in fewer areas, rather than delivering courses across all disciplines. The focus on efficiency includes the best use of the large tracts of land that some Universities control.
Tertiary facilities managers have responded to change
All of these changes affect property. With the government target to increase higher education completion rates to 40%, Australia’s growth corridors will experience a large increase in tertiary students over the next decade. At first glance, this would seem to translate into the need for additional higher education sites in the growth areas. However, the future prospect for the tertiary education sector is one of consolidation and better use of sites.
First, as University facility managers have not been achieving the benchmark of 75% of spaces being used 75% of the time; there is now a major push to improve the space utilisation across campuses. This has led to the closure of campuses that are not forecast to achieve sufficient utilisation. Notable examples are the closures of the Victoria University Sunbury campus, Bendigo Institute of TAFE’s Kyneton campus and the teaching closure of Swinburne University’s Lilydale campus.
The Sunbury campus is now for sale, and it is likely that there will be more closures, and more sales.
Instead of using these redundant campuses, the focus will turn to increasing the capacity utilisation of existing campuses, which includes some significant expansions, particularly in regard to each institution’s area of specialisation.
Key examples of these investments are at Swinburne University’s Hawthorn campus where the new Advanced Technologies Centre has been built at a cost of $140m, and the $100m Advanced Manufacturing Centre is under construction. Monash University is constructing the Green Chemical Futures Building at its Clayton campus to be completed in 2014. The University of Ballarat is also building a new Science and Engineering Precinct at the Mt Helen campus, with funding from the Education Investment Fund.
Another major trend is the investment in new University hospital, medical and health training facilities. Urbis Planning and Design have worked on the largest of these projects – the $2bn Sunshine Coast University Hospital Building at Kawana, Qld. On a smaller scale, in Victoria, Deakin University is building a new private hospital on its Waurn Ponds campus, in conjunction with Epworth private. There will be much more to come in this sector, to deliver the very high demand for training in health and social assistance.
New models of education property are emerging
Not all institutions have the funding (or desire) to embark on significant capital programs. This is leading to a variety of new models for property use in the education sector. For some time, private training providers have preferred to rent rather than own property. Those who offer training in the key demand areas – including IT, Engineering, Resources, Accounting, and Logistics – are seeking to expand and are looking for appropriate facilities to be leased.
However, the most significant trend is the shift towards multi-use campuses. Rather than a facility being used solely for one educational institution, a range of models are now emerging to enable different groups to share land and facilities.
- Victoria University has opened an off-campus facility in conjunction with the Western Bulldogs at Whitten Oval teaching sport, human movement and recreation.
- NMIT have partnered with the Kyneton Racing Club to create a training centre in viticulture, agriculture, horticulture, agriculture and the equine industry.
- Chisholm Institute and Monash University have developed an alliance across their two facilities in Berwick.
- Kangan Institute operates its Craigieburn Flexible Learning Centre from within the Malcolm Creek Learning Centre, next to the Craigieburn Primary School.
Another driver of these changes is the increasing use of online learning, and internet-based conferencing facilities. A good example of this is the Hume Global Learning Centres in Broadmeadows and Craigieburn. Victoria University is planning to utilise these facilities to deliver synchronous off-campus lectures and tutorials to students, and to facilitate project work.
Although many of these alternative delivery models are too new to be properly evaluated, it is clear that educational institutions, governments, private bodies and local councils are keen to pursue these opportunities.
For the property industry, the emergence of these mixed-use educational facilities is an obvious opportunity, particularly if the locations can deliver on key student demands of:
- Good access by public and private transport
- Access to employment zones
- Access to student accommodation
- A location within or close to an activity centre
Multi-purpose developments more likely under the new model
Any new construction for higher education facilities must satisfy the needs of the students (and for vocational training, may also need to satisfy the needs of employers). As a result, there are a number of training facilities being developed in both WA and Queensland, to deliver training for the resources sector, where demand is high.
Likewise, given the reduction in international students entering Australia, some providers are setting up offshore, to satisfy the strong demand in those locations. Some examples are:
- Monash University has become the first Australian university to be granted a licence to operate in China and has established a graduate school campus in Suzhou, near Shanghai. Monash also operates a campus in Malaysia.
- First Impressions Resources (fir) has opened a campus in Hyderabad, in conjunction with GREAT India.
However, given the current economic and political climate, the likelihood of new campuses being established by lone institutions is not high. The most realistic scenario would be a requirement on behalf of a State or Federal government. As an example, political reason was one of the influencing factors in the establishment of the Swinburne Lilydale campus in 1992. Although there are always complex factors involved in a decision to launch a new campus, electoral considerations of servicing Melbourne’s outer east were relevant at the time.
Given that Swinburne has announced that the campus will cease teaching operations, this would give governments pause for thought. Importantly, they would look carefully at the population size and growth as the Lilydale area has only experienced 1.1%p.a. population growth over the last ten years, which is not the rapid growth that might have been expected 20 years ago.
If a government does choose to fund a facility in a growth area, it is more likely to be the development or expansion of a multi-purpose centre such as the Hume Global Learning Centres.
A world of change creating novel opportunities
Over the past four years the higher education and vocational training landscape in Australia has changed enormously. To implement the changes required to the sector will require significant changes to land use. For the property industry, these changes may be challenging, but they provide a vast range of opportunities:
- For design and construct firms, more major developments on existing campuses are likely, particularly creating world-class specialised centres such as those being built at Swinburne.
- In locations of highest demand, landlords will find opportunities to provide appropriate facilities for private training firms to lease.
- Developers may find opportunities to partner with governments to create multi-function learning/conferencing/community centres.
- With the forecast increase in student numbers, student accommodation opportunities will continue to arise
- The development of more major teaching hospitals provides a range of opportunities
- Operators of a range of community facilities from racecourses to libraries will be likely to partner with education providers to facilitate off-campus learning at satellite sites.
Of course, these are only some of the possibilities. Education will continue to be a space to watch.