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Foreign students a growing force in London real estate

Wealthy international students are forking out the cash even financial professionals aren't willing to pay to rent a crib in prime central London (PCL), reflecting shifting dynamics in the city's high-end property market.

Foreign students accounted for the largest proportion of new tenancy agreements signed over the last 12 months in PCL at 41 percent, almost double that of finance professionals' mere 21 percent - the lowest level on records, according to data from London Central Portfolio, an asset management firm.

"The increase in student renters in PCL should be no surprise. Westminster houses three of the best universities in the world; Imperial College, University College London and LSE, and sees 100,000 students visiting a year," Naomi Heaton, CEO of London Central Portfolio, wrote in a report.

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"London has become a magnet to these privately wealthy young adults who are looking for top-quality accommodation to go with their top-drawer education," she said.

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With 82 percent of affluent Chinese families currently planning to send their children to study overseas, students are increasingly important force of the market, Heaton noted.

Financial professionals - historically a mainstay of the market - have pulled back from renting in the city's more exclusive neighborhoods in the recent years amid increased job uncertainty.

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Nonetheless, rental prices in the segment have remained resilient, rising 6.2 percent for brand new flats in the past three months, according to London Central Portfolio's tenancy records.

"Students have made an important contribution to this rebound - not only are there more of them, increasing the competition in the market - but they have deeper pockets. Students are outbidding the corporate sector for properties, paying £600 a week for a flat, 7 percent more than the average market rent of £562," Heaton said.

As students play a bigger role in the PCL's rental market, this has led to increased seasonality for landlords, said Heaton.

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"Some students will only be renting for an academic year, which contributes to the higher level of new tenancy starts ups by the student population," Heaton said. "On the other hand, tenants from the financial sector may extend their tenancies and stay put for a number of years, which remains attractive to a landlord," she added.

Nevertheless, landlords are increasingly buying into the concept of international student tenants.

"Many have experienced a sophisticated lifestyle: they treat properties with the same care as corporate tenants, but the wealth underpinning them is stronger. This means they can often outbid professional tenants, offering higher rents, often a year upfront, as parents are keen to install their children in the best, most secure homes," said Heaton.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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