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Posted on Thu, Mar 31, 2011 : 5:57 a.m.

$45 per square foot: New retail listings at 601 Forest signal changes on Ann Arbor's South University

By Paula Gardner


Site work continues this week at 601 Forest in Ann Arbor.

Melanie Maxwell |

Ann Arbor’s new student high-rise developments are changing the residential landscape near the University of Michigan campus — and as their retail spaces come onto the market, they’re preparing to reshape key commercial areas, too.

The new retail listing for 5 retail spaces at the 601 Forest high-rise sets a new ceiling for rental rates along South University, brokers say, with the asking rate at $45 per square foot.

“What it suggests is both an optimism about being able to get a strong ground-floor tenant in and the type of audience they’ll be serving,” said Susan Pollay, director of Ann Arbor’s Downtown Development Authority.

“… The second piece of that is it will be interesting to see how the market receives it,” she said.

601 Forest, located at the corner of South Forest, is being developed by Ron Hughes of Oakland County; Campus Acquisitions of Chicago; and Harrison Street Real Estate Capital.

The listing for the high-rise, which is expected to open in fall 2012, follows the listing for the new Zaragon Place 2, which has a retail space available across campus on East William for $42 per square foot.

Both indicate the commercial vitality generated in areas near the University of Michigan’s Central Campus and the heightened leasing activity resulting from it, as evidenced by the wave of recent high-priced deals on South State.

The difference between the two new projects is the location: Zaragon raises the rates a couple of blocks from the Diag. At 601 Forest, the spaces will front the high-traffic commercial portion of the street, which caters to students and has lost some of its appeal to a broader range of customers as a result.

South U once was home to high-end retailers and more than student services, recalled Jim Chaconas of Colliers, listing broker for the 601 Forest spaces.

Today, he said, the lack of vacancy on the street speaks to its ability to connect the student market with retailers that inspire them to spend. As the number of U-M students climbed above 40,000, there’s a base to support the corridor’s growth — including in rental rates — in coming years, he said.

“There’s volume there now,” Chaconas said. “And it’s a fairly wealthy campus, which helps.”

South State Street, in comparison, “always had the corporate synergy,” said Brendan Cavender, also from Colliers.

Rental rate hikes followed Starbucks, Potbelly and Panera to that area several years ago, and now they’re climbing with additions like 7-Eleven, Five Guys Burgers and Fries and CVS, according to brokers who watch the commercial district on the western entrance to U-M’s Diag.

That’s happening amid student housing expansion near the corridor, which also is holding onto anchor retailers like Borders and Urban Outfitters, as well as region-wide draws like the Michigan Theater on East Liberty.

At the other end of the Diag, the South University district raised community concern several years ago as the business mixed turned to student-oriented retailers and the rental rates climbed to the $30-per-square-foot range.

Today, South U is solidly student-oriented despite some successful operations that pull from a wider audience — like Pizza House, located steps away from South U on Church Street, and the U.S. Post Office.

Another example was Village Corner, the longtime wine shop that was bulldozed to make way for 601 Forest. (Owner Dick Scheer still promises news on a relocation.)

Yet the rental rates mostly haven’t climbed above that plateau since then, said Jim Porth of the Thomas Duke Co. One reason is the number of long-term lease deals.

Another, he said, is what some retailers say are flattened sales over several years.

The question about the 601 Forest construction, he said, is how much will it drive increases in retail sales along the street?

“It’s a great spot and it’s going to change the traffic pattern somewhat and draw students closer to South University,” Porth said. “But it may not force more sales than existing tenants are getting.”

Yet adding 640 student beds to the street — even if it just pulls them from fringe areas of campus — adds luster to the street for a retailer, said Chaconas.

And as he priced the 601 Forest retail space, he considered the lack of availability in older properties along the street. Today, only one vacancy is listed — and it’s the Campus Rental office at the Washtenaw corner, a space that could be converted to retail use.

“There’s such an onslaught of people wanting to be there and it’s such a minute market,” Chaconas said.

The national chains that are finding success on South State also send an encouraging message to other nationals that may want a piece of the Ann Arbor student market. While some — like CVS — see the potential to serve beyond the student market on South State, others are renewing their interest in looking at South U.

The 601 Forest listings may take some time before they’re converted to leases — with new construction, many retailers wait until the end is in sight before committing.

Yet there’s already interest in the space, Cavender said, mostly from national restaurants.

The new construction will indicate to Ann Arbor both how deep the student rental market is for spaces next to campus — and the appetite for retailers to seek that proximity, too.

The result, according to Porth: “The epicenter of student life is constantly changing with development.”

And adding the storefronts to the lower level of a large residential complex could add a new energy to the street, Pollay said: “It’s an opportunity for the whole district to get a fresh start."

Paula Gardner is Business News Director of Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.


Wolf's Bane

Fri, Apr 1, 2011 : 1:25 p.m.

Asking and getting a rate at $45 per square foot at 601 Forest are two different things. As for a current occupancy rate of 95% of rentals in that neighborhood? I seriously doubt it. Unless, U of M plans on doubling the income freshman class to 50k for 2013, 601 Forest will not garner Chicago type rents for apartments or retail spaces. Someone please check the statistics again and projected income figures? Please?


Thu, Mar 31, 2011 : 7:32 p.m.

$45 per foot is not going to attract any business other than high average ticket, or extremely high volume retail that mainly caters to students. Escalating retail rent is why almost all of the traditional retailers that were adjacent to the campus have gone under or gone elsewhere. Now, it's mainly restaurants/food/coffee places sprinkled with a few student-oriented clothing stores. If you're not interested in those types of businesses, there's no reason to go down there.


Thu, Mar 31, 2011 : 3:43 p.m.

Rental space can be offered at any price that the lessor wishes. Whether the rental properties can actual attract interest at $45 per square foot is yet to be seen. The reader can presume that none of the space has been leased yet since that fact will have been mentioned in the article. Interestingly, LoopNet's &quot;Ann Arbor Commercial Real Estate for Sale and Lease - Ann Arbor, Michigan&quot; web page lists 25 Ann Arbor commercial rental spaces which range in offerings from $3/sqft to $28/sqft. You should understand that none of these properties have leased yet. On another of LoopNet's web pages was a vacant restaurant property on South State Street at the intersection of North University that was listed for $35.21/sqft. All other restaurant properties were offered at far less dollars per square foot. <a href="" rel='nofollow'></a> Let us not confuse optimism with reality.

Bob Martel

Thu, Mar 31, 2011 : 4:13 p.m.

So true. Often those pie in the sky rental rates are used by developers to dupe banks and investors to fund their projects. Once the project is completed (and the developer has pocketed his fee,) reality inevitably sets in, the projected rents are proven to be an illusion, the project tanks, the bank takes it back, the investors are wiped out, rents are re set to reality to mitigate the loss, the project slowly fills. Then a couple of years later, the developer sneaks back into town, and the whole starts all over again. Reminds me of those words on the side of shampoo bottles: Lather, rinse &amp; repeat.


Thu, Mar 31, 2011 : 3:19 p.m.

MB and Terminal: How do you define affordable housing? According to a previous article in the, Zaragon 2 will charge $1000 per bed (or $12,000) a year, and without a meal plan. As I understand rental rates for rooms in local neighborhoods average considerably less. At some point available student rental units may exceed demand. I hope that this does not happen with Zaragon 2 since Ann Arbor city government needs its tax payments. <a href=""></a>


Thu, Mar 31, 2011 : 3:50 p.m.

I fail to see where a definition of affordability makes any difference to what is essentially student housing paid for by their overindulgent parents


Thu, Mar 31, 2011 : 2:58 p.m.

It seems that a whole bunch of &quot;milllenials&quot;, 20 and 30 somethings, Gen X Y and Z's want it handed to them on a silver platter. If you want something, work for it. Participate, invest, take risks... Like the rest of us. The world is not your oyster. The pearl was being made long before you got here. If you want something bad enough, get off your duffs, turn off your phone, put down your video games, and stay in one place long enough to make a difference. Most of you will not be here in the long run and the rest of us will have to deal with your folly.

Marvin Face

Thu, Mar 31, 2011 : 6:48 p.m.

mumblemumble...young whippersnappers!


Thu, Mar 31, 2011 : 6:13 p.m.

Sorry about my dog urinating your crocuses Marvin, I'll be more careful next time.

Marvin Face

Thu, Mar 31, 2011 : 3:47 p.m.

...and another thing, get off my lawn!


Thu, Mar 31, 2011 : 1:05 p.m.

Al is wrong. The University has quietly grown its undergraduate population. Fall 2010 26,185 Fall 2009 25,342 Fall 2008 25,168 Fall 2005 24,446 <a href="" rel='nofollow'></a> <a href="" rel='nofollow'></a> Citizens decry the lack of affordable housing, yet protest when new supply is proposed. This is the ultimate NIMBY attitude. Density around campus will allow for neighborhoods to be reclaimed by families in addition to addin a much needed tax base. The citizenship of Ann Arbor claims to be progressive but in reality are deathly afraid of change and are, in fact, reactionary.

Marshall Applewhite

Thu, Mar 31, 2011 : 4:11 p.m.

@Terminal There's a reason I said &quot;signify&quot; and not &quot;cause&quot;. If the market can sustain more high rise housing in the Main Street area, it means we're starting to diversify, and therefore won't be so reliant on UofM as the primary driver of economics in this area.


Thu, Mar 31, 2011 : 3:48 p.m.

@Marshall Applewhite: On what do you base your claim that more hi rise buildings will signify more YP's moving to the area? They'll come if there is more economic opportunity for them, not if there is more housing they like.

Marshall Applewhite

Thu, Mar 31, 2011 : 1:28 p.m.

Your final sentence is dead on. In fact, I hope there soon will be a couple high rise buildings constructed in the Main Street area. This will signify more young professionals moving to the area.


Thu, Mar 31, 2011 : 11:40 a.m.

Some quick math. Current Vacancy is 5%. We are adding 640 beds to that mix with more coming. No question they will draw students. The U of M has not grown in UnderGrads in 5 years and has not intention of doing so. The Mayor and Council have determined that they want to centralize students from current locations and put them in high rises close to S. U. I have strong concerns of the wind effect this second high rise will produce down S.U. We have sufficient housing now and do not need another misguided direction by the city to reinvent how we live. History is busy with examples like closing main streets to walking malls. Unfortunatually, by the time it is apparant that the negative effect of high rises will have on Campus Town, it will be too late to do anything about it. This is a major change and I think not well thougth out by the city who is supposed to be watching out for this. By the way, you local folks depending on retiring on the income from your rental home 7-10 blocks from campus, start replaning.


Thu, Mar 31, 2011 : 5:06 p.m.

Wind effects? You've got be kidding. If anything, maybe we can put something up to capture that energy. It's a win win.

Marshall Applewhite

Thu, Mar 31, 2011 : 1:35 p.m.

Anyone depending on a lifetime of income from a rental house 10 blocks from campus is extremely shortsighted. These type of misguided ideas should not be rewarded, especially by attempting to lie with &quot;statistics.&quot; I get a kick out of people who are hoping Ann Arbor remains in the stone age, solely so they can continue to get a small rental income on the outskirts of town.