Challenge for international education providers

On the upper floors of largely secondary grade office buildings along the main commercial and retail strips in New Zealand’s biggest cities, thousands of international students are improving their educational credentials at private training facilities. 

Bayleys’ national director commercial real estate, John Church, says training providers often face hurdles when trying to lease space for their businesses as landlords can be reluctant to have certain education providers in their buildings.

“Given the number of students involved, and the resulting wear and tear on utilities and physical space such as lifts and common areas, education provider-tenants can be perceived as being less desirable than other commercial tenants,” Mr Church says.

“It can be a challenge for leasing agents to get their landlord clients to commit to having international education providers as tenants – particularly in mixed-use buildings.

“As in any tenant-landlord relationship, there is ‘give and take’ involved and carefully structured lease agreements can usually address most concerns.

“The reality is, the international education sector is growing – and demands for space are following suit.”

New Zealand has one of the highest ratios in the OECD of international to domestic students at the tertiary level, with Auckland the biggest market.

“While New Zealand universities have billions of dollars tied up in property portfolios and in private market leasing arrangements, the bulk of private training providers lease campus space in the CBDs – or fringes – of our major cities,” Mr Church says.

“These private providers need to secure viable space at reasonable rental rates and with acceptable lease terms to allow them to have some certainty over delivery of their programmes.”

Research conducted by Bayleys shows the education sector has been noticeably active over the past six months in the Auckland CBD. The education sector now occupies 14% of the net lettable office space available in the central city, effectively occupying close to 190,000sq m. 

In Wellington, the private training sector is less active than Auckland but an ambitious plan to significantly lift the numbers of international students in Wellington is in place. 

The Wellington International Strategy is aimed at universities, polytechnics, private English language and training providers and schools doubling the number of international students studying in the Wellington region by 2023.

New Zealand Language Centres (NZLC), one of the largest and longest-running language schools in New Zealand, has campuses in Auckland and Wellington. Before the 2011 Canterbury earthquake, NZLC also had a campus in Christchurch and is now looking to re-establish a presence there. 

NZLC co-director Miles Stewart says there are a multitude of challenges facing private education providers looking to lease premises suitable for a learning environment.

“The primary factor is that the premises must be within easy walking distance of a primary transport hub,” Mr Stewart says.

“Ideally, we need to secure commercial space, which has formerly been an office environment with multiple meeting and break out rooms – that keeps fitout costs down.”

“We also require communal spaces, a student kitchen, offices and computer alcoves with good flow between all of the areas to avoid congestion of the public spaces.”

NZLC leans toward securing long-term leases of about 10 years and Mr Stewart says it has encountered some resistance from landlords when trying to secure suitable campus space.

“It’s a tradeoff between a landlord wanting the long-term security of a committed tenant, and the perception that an education provider may not always be an ideal fit with the balance of tenants in a building,” Mr Stewart says.

He says that when NZLC secured its Auckland flagship space in Customs St, the landlord was keen to have a long-term tenant locked in, and saw the value in a tenant that could take two-thirds of the available area.

When government-owned polytechnic Nelson Marlborough Institute of Technology (NMIT) and private training establishment Skills Update Training Institute, jointly wanted to establish a campus in Auckland, their search for commercial property was challenging.

The venture’s project manager and NMIT Global Campus director at that time, Nick Yerni, says they wanted to initially lease 1200sq m in a building that had capacity for expansion. “We were willing to do our own fitout and we would have preferred to be the only education provider in the building but we found it difficult.

“Rightly or wrongly, there was a general feeling that buildings would be unattractive for corporate tenants if there was an education provider in residence.” 

After initially looking at 42 Upper Queen St, Auckland as a lease proposition, Mr Yerni says they bought the building and then embarked on an extensive programme of works including seismic strengthening and the conversion of a car park level to additional floor space.

It is now one of just a few international student-only training providers close to the CBD with a standalone campus.

“What we achieved is an outstanding modern facility that is highly visible in the market and which makes it possible to deliver a positive learning experience to the international students,” he says.

Read the full article Upper Levels in Bayleys’ latest Total Property magazine.

Jody Robb writes for Bayleys Real Estate