There is constant discussion regarding creative office space and how it may or may not propel productivity. Simultaneously, the market continues to demand fresh solutions that appeal to the ever-increasing tenant base of young, Millennial workers.

The result is a host of institutional owners who are finding that a focus on social and collaborative environments is delivering increased value and reduced concessions.

Collaborative Space: The Midas Touch For Office

By the year 2020, approximately 50% of the entire US workforce will be Millennials.

This new, digital workforce tends to view office space as merely a connective platform, as opposed to a physical location.

Institutional owners are proactively responding to this new mentality, ensuring that tenants have a variety of places to gather and work with easy access to power and Wi-Fi.

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Through strategic capital implementation, many owners are re-developing common areas within their existing assets to feel more social and collaborative.

For example, landlords LBA Realty and the Irvine Co. have both demonstrated that rent premiums are possible by offering collaborative workspace. LBA's Park Place Irvine and the Irvine Co.'s Discovery Center each offer accessible indoor and outdoor spaces with complimentary amenities that appeal to a younger employee base.

The result of this movement is increased demand from tenants, who are finding that these more progressive and social work environments reflect their taste, and enhance their ability to attract the best and brightest talent within their respective industries.

For landlords, this means an opportunity to achieve rent premiums with fewer concessions.

Concessions On The Way Out In Office Market

Often, the first sign of an improving market (however slowly) is a transactional reduction in tenant concessions. This sign has emerged in today's market.

Market concessions of the past few years, such as free rent, discounted/free parking, moving allowances, FF&E allowances, as well as former lease obligation buyouts are beginning to fade.

The office market is steadily becoming healthier, and has posted slow-yet-steady rent growth over the past 12 to 14 months. Ongoing job growth will further fuel tenant demand, which will in turn drive rents up - likely to increase in the 10% to 15% range by the end of 2014.

As vacancy continues to drop throughout the office market, many landlords have already raised their asking rates, and even those still fighting significant vacancy issues have at least begun reducing tenant concessions. These concessions will continue to reduce as market conditions improve.

Overall, today's successful institutional owners are capitalizing on the new demands of office tenants in order to build value in their assets. By implementing redevelopment strategies and even basic property improvements that promote collaborative workspace both indoors and out, institutional owners are finding that rents are rising and concessions are fading - a trend that will likely deliver strong bottom line results over the next few years.

John Harty is a SVP in Voit Real Estate Services' Irvine office. Contact him at [email protected]. Michael Coppin is a VP in Voit Real Estate Services' Irvine office. Contact him at [email protected]. The views expressed in this column are the author's own.