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IRVINE, CA—With economic improvement comes a sharpening of focusfor property owners.

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Specifically, in light of continually improving occupancythroughout the office market, institutional owners now have thechance to re-focus on new ways to drive value in their assets.

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Many are finding this value in collaborative indoor and outdoorworkspace.

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

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The result is a host of institutional owners who are findingthat a focus on social and collaborative environments is deliveringincreased value and reduced concessions.

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Collaborative Space: The Midas Touch ForOffice

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

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

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

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Through strategic capital implementation, many owners arere-developing common areas within their existing assets to feelmore social and collaborative.

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For example, landlords LBA Realty andthe Irvine Co. have both demonstrated that rentpremiums are possible by offering collaborative workspace. LBA'sPark Place Irvine and the Irvine Co.'s Discovery Center each offeraccessible indoor and outdoor spaces with complimentary amenitiesthat appeal to a younger employee base.

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The result of this movement is increased demand from tenants,who are finding that these more progressive and social workenvironments reflect their taste, and enhance their ability toattract the best and brightest talent within their respectiveindustries.

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

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Concessions On The Way Out In Office Market

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Often, the first sign of an improving market (however slowly) isa transactional reduction in tenant concessions. This sign hasemerged in today's market.

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

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The office market is steadily becoming healthier, and has postedslow-yet-steady rent growth over the past 12 to 14 months. Ongoingjob growth will further fuel tenant demand, which will in turndrive rents up - likely to increase in the 10% to 15% range by theend of 2014.

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As vacancy continues to drop throughout the office market, manylandlords have already raised their asking rates, and even thosestill fighting significant vacancy issues have at least begunreducing tenant concessions. These concessions will continue toreduce as market conditions improve.

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Overall, today's successful institutional owners arecapitalizing on the new demands of office tenants in order to buildvalue in their assets. By implementing redevelopment strategies andeven basic property improvements that promote collaborativeworkspace both indoors and out, institutional owners are findingthat rents are rising and concessions are fading - a trend thatwill likely deliver strong bottom line results over the next fewyears.

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John Harty is a SVP in Voit Real Estate Services' Irvineoffice. 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.

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