Councillors approve student flats after tight vote

Councillors approved a plan for a 10‑storey, nearly 300-room purpose-built student accommodation block on the Western Way site in Exeter, to be developed by Manchester-based Zinc Real Estate after demolition of Clarendon House; a previously proposed 20‑storey tower was scaled back following criticism. Permission passed by six votes to three (with one abstention) amid local opposition and Historic England design concerns, while proponents argue the scheme will free family homes by rehousing students and that the site is suited to high-density student housing.

Analysis

Market structure: Approval of a ~300‑bed PBSA tower in Exeter benefits PBSA developers/operators (higher margin, institutional demand) and construction/material suppliers while pressuring local HMO landlords by releasing ~300 rooms back to the private market. Expect a modest local yield compression for family-rentals (~100–300bps) as supply unwinds; PBSA groups gain pricing power in gateway sites where planning is scarce. This is incremental, not systemic—single‑asset approvals matter most in supply‑constrained city centres.

Risk assessment: Tail risks include a successful legal/heritage appeal (project delay/cancellation), a 5–10% drop in international student enrolments, or a 100–200bp rise in development funding costs that can flip project IRRs. Near term (days-weeks) political headlines and appeals drive volatility; short term (3–12 months) procurement and financing moves; long term (2–5 years) operational performance depends on university enrolment trends and local housing policy. Hidden dependency: local council stance is a leading indicator—if Exeter’s tight vote becomes a template, scarcity could drive PBSA values higher.

Trade implications: Favor public PBSA/UK student REITs and construction-material names while trimming HMO/small-regional landlords. Specific plays: directional long on major PBSA exposures (Unite Group UTG.L, Empiric EMP.L) and CRH.L for materials; hedge policy/occupancy risk with put protection or short small-cap regional landlords (Grainger GRI.L). Options: use 9–12 month call spreads to cap premium; if enrollment data misses by >3% y/y, tighten stops or reverse.

Contrarian angles: Consensus underestimates planning-risk scarcity—fewer gateway approvals can make successful PBSA projects defensible long-term, supporting rents and NOI growth. Conversely, persistent UK student headcount declines would quickly reprice PBSA risk (overhang across 12–24 months). Watch HESA enrollment (next data release within 30–90 days) and local appeals — these are binary catalysts that can flip valuations.

Key Decisions for Investors

• Establish a 2–3% net long allocation split 60/40 between Unite Group (LSE: UTG) and Empiric Student Property (LSE: EMP) over 3–12 months; target entry UTG at <£25 and EMP at <£0.85 (adjust to market), trim if either reports enrollments down >3% y/y or NAV revisions cut >5%.
• Buy 12‑month call spreads (debit) on UTG: long 25% OTM call, sell 50% OTM call, notional equal to 1–1.5% portfolio risk; thesis: scarcity of gateway PBSA lifts mid‑cycle rents while capping cost of carry.
• Take a small tactical short (0.5–1% portfolio) in Grainger plc (LSE: GRI) or a regional HMO landlord with >30% student tenants; close if HESA enrollment outperforms by >2% or local PBSA take-up >70% within 12 months.
• Allocate 1–2% long to CRH plc (LSE: CRH) as a materials play to benefit from near‑term construction activity; reduce if UK construction PMI falls below 48 for two consecutive months or commodity prices spike >15%.
• Monitor (action triggers): HESA enrollment release in next 30–90 days, Exeter appeal filings in 0–6 months, and UK student visa policy updates—if any show negative surprise (enrollment down >3% or visa curbs), unwind PBSA longs within 2 weeks.