As the finishing touches are put on the new North Quad classroom and dormitory, the contractor is preparing to turn over the building to the University of Michigan in time for fall move-in.

The building includes a 10-story residential section that will house 450 students. And as those students move in and get acclimated to their new surroundings, the nearest commercial spaces will be what - until now - had been an undervalued stretch of South State.

So while North Quad is nearly finished, the impact on South State Street is just beginning.

U-M “did a beautiful job on North Quad,” said Jeff Hauptman, owner of the Oxford Cos., which runs its offices from a South State Street loft above Amer’s Mediterranean Deli.

And the impact to retailers nearby, he said, will be significant.

It’s an interesting transition for a corridor that’s one of the most vital retail districts in the city, based on occupancy and rental rates.

Today, the “heat” of South State is generated from William Street north to East Liberty, as witnessed by pedestrian patterns and rental rates.

At the northern end, the intersection of Liberty and State forms one of the most active corners downtown.

“It’s never been stronger,” Hauptman said.

Both Borders and Urban Outfitters act like anchor stores, giving rise to still more successful, busy establishments in between them.

And elevated activity on Liberty Street all the way to South Division has been highly visible over the last year.

Now, though, we’ll need to brace for the former “dead zone” of South State from the State Theater and Urban Outfitters north to Washington Street to come alive with the increase in students nearby.

One sign of change already is in the works: CVS plans to build a store there, replacing smaller storefronts that used to act like a business incubator for startups and independent restaurants.

More changes may happen slowly, but few Ann Arbor real estate investors would doubt there’s opportunity there.

North Quad, “is going to be a big improvement for State Street,” said Howard Frehsee, the developer who built Corner House Lofts high-rise at the southeast corner of State and Washington.

Frehsee also owns the building that now houses Sava’s Restaurant, which relocated from its former site across the street to make way for CVS.

Someday, Frehsee said, he’ll redevelop that building, and the likely result will be a mix of office and residential space, possibly with some retail. And probably not student housing.

“In a downtown are, the highest and best use of the property is anything that creates more density,” Frehsee said.

From the State Theater to the south, the street’s historic characteristics shouldn’t be changed, he added.

“But from the theater (to the) north … there’s no reason you can’t create some nice density that fits into the rest of the milieu,” Frehsee said.

Yet while the foot traffic increases on the street, and the most active parts of the street expand to include the stretch between Liberty and Washington, there’s still some concerns that the flavor of South State will change.

As rental rates set new peaks, there will be new parameters for the types of businesses that can sustain themselves with that kind of overhead.

Many will be restaurants. Most of those will be chains or need liquor licenses to add dollars to their transaction average - and to sell more outside of traditional lunch and dinner hours. And many downtown-watchers hope the retailers find balance to cater to both students and non-students, preserving the chance for the area to attract from a wider audience and not turn this part of downtown into a student-centered district like South University.

The changes on the street make it better, said Jim Chaconas, who’s brokered many deals in the corridor, including Five Guys Burgers and Pitaya.

He also sold the former Ritz Camera building, and has it listed for $35 per square foot per year.

The area has needed a drug store, and it’ll get that in CVS. Some outdated buildings - like Ritz Camera - will be upgraded with new tenants. And he’s seeing a variety among the new tenants that gives the corridor some balance.

The real test may come from who shops and eats along South State after North Quad opens.

We know students will be a big part of the audience. But will the rest of Ann Arbor still make it a destination?

Hauptman thinks so. And he thinks the vibrancy that the students help create will be a part of it.

“Townies come down here expecting a certain energy that you don’t get on Main Street,” he said.

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