University of Michigan expansion to ex-Pfizer site may not harm Ann Arbor landlords
The first question many in Ann Arbor have about the University of Michigan’s move to the former Pfizer campus is: Will it just move around U-M’s existing offices or be a true expansion?
The answer, U-M officials told me this past week, is unambiguous: Expansion.
“If that’s the direction, it’s nothing but good news for the entire Plymouth Road corridor,” said John Petz, spokesperson for Domino’s Farms.
It’s also good for local office landlords if U-M - as planned - phases in that expansion over several years.
Domino’s Farms, located about one mile east of the former Pfizer campus, is the third-largest landlord that leases off-campus facilities to U-M, with about 230,000 square feet at the latest count. That’s about 30,000 square feet less than First Martin Corp. and 10,000 square feet behind Oxford Co.
The announcement about U-M’s purchase was just minutes old before some in town started to do the math: The university could save at least $14 million per year if it moved from leased space from the three top landlords (assuming an average gross rate of $20 per square foot); the total climbs to $22 million when considering all of U-M’s 1.1 million square feet of leased space.
If that happened, the city would be grappling with about 33 percent more vacant office space. But U-M is looking at creating new and expanded research units, not “more elbow room,” said Joan Keiser, adjunct professor in the medical school and the lead on strategic planning for the site.
In other words: They just don’t need new or larger offices to hold the same operations.
That doesn’t mean landlords can breathe easily and assume the off-campus leases will never be terminated. Domino’s Farms hasn’t heard from any U-M tenants about planned move-outs, Petz said, but at least one U-M office on Green Road has informed a landlord it won’t be renewing in 2010 because it’s moving onto the Pfizer campus.
Any existing department’s move to the Pfizer campus will mean it leaves some open space to fill.
But it does sound like the value of retaining some off-campus leases - including the building improvements, funded by U-M - will be weighed into U-M’s decisions about who moves into Pfizer.
And a fair amount could remain in privately-owned office space.
Office landlords stand to benefit from the renewed activity on the site, too. Research expansion means more business emanating from that campus - and that means more opportunities for landlords to lease to the companies that want to be near the U-M facility.
One thing that landlords would like from U-M as this plays out is communication about the process.
“I hope that there’s opportunity for dialogue with the university and the potentially affected property owners around town,” Petz said.
That would allow everyone to brace for change - and capitalize on the opportunities at the emerging research hub.
“If there’s some discussion and a plan put forward that has reasonable timetables that everyone can adjust to,” Petz said, “it’s a win-win across the board.”
Paula Gardner is Business Director at Ann Arbor.com, where she covers real estate and development. Contact her at (734) 623-2586 or by email.