The University of Michigan's most ambitious student entrepreneurs are getting more space to develop their startup companies.

U-M recently signed a lease with Ann Arbor-based McKinley Inc. to move the TechArb incubator from a 2,200-square-foot office on the fourth floor of the McKinley Towne Centre to a 3,200-square-foot space at The Offices at Liberty Square, a development generally remembered as the basement of Tally Hall and the former headquarters for Borders.

The new TechArb space is cheaper, to be sure, but U-M and McKinley said that wasn't the reason for the move. They said the number of U-M student-led startup companies is proliferating and they had run out of space at McKinley Towne Centre, which is otherwise full with Google's Ann Arbor sales office, law firm Bodman and economic development group Ann Arbor SPARK.

"This new lease is to allow us to expand the TechArb facility. That's the major reason we did it," said Doug Neal, executive director of the U-M Center for Entrepreneurship, which co-created and co-funds the incubator along with the Ross School of Business' Zell Lurie Institute for Entrepreneurial Studies and the U-M vice resident for research.

The move to The Offices at Liberty Square returns the incubator to its roots at a space located just steps from the intersection of State and Liberty streets, one of Ann Arbor's hottest leasing markets.

TechArb started as an summer-long experiment in 2009 — when McKinley donated a corner of the Tally Hall basement to U-M's student startups. Several companies flourished, student entrepreneurs gained a wealth of knowledge about running new companies and U-M decided to make it a permanent enterprise.

Now, McKinley CEO Albert Berriz is hoping that TechArb's return to The Offices at Liberty Square will serve as a catalyst in the creation of a hub of entrepreneurial activity.

"That building becomes a nexus for entrepreneurial companies that we can bring into the market, either directed related to the university or in other ways related to the university," Berriz said. "It really is about building around the university startup community. There’s a lot of things that other locations may have throughout the county, but nobody is one block from the Diag. So to have the quality of space that we have that’s one block from the Diag is the big driver."

He said McKinley as received inquiries from other startups, including companies led by recent U-M grads, about leasing space nearby TechArb.

"A lot of people are very interested. They love the location. They love that TechArb will be there," said Thomas Gritter, McKinley's assistant vice president for commercial client services, who negotiated the deal.

McKinley is currently building an enclosed space for the student entrepreneurs in a renovation project that's expected to be finished by the fall. But part of the vision is to create a common area in the center that other entrepreneurial ventures can use "to create an ecosystem that will allow engagement with the community and startups and students to all mingle together," Neal said.

The asking price for space in the Offices at Liberty Square is $15 per square foot annually — which compares to the high $20's at McKinley Towne Centre, although Gritter said TechArb was paying a "quite discounted" rate there.

"It was more of a traditional office and they just didn’t have any room to grow in there," Gritter said. "It was full."

The new space, Neal said, is particularly appropriate because it's connected to the Liberty Square parking garage.

"The fact that it's in the garage is very appropriate," Neal said. "Many startups start in the garage. This just happens to be a very large garage.

The deal comes as several companies that got their start at TechArb are drawing attention from investors and customers. Firms like mobile solar energy device startup June Energy and CAPTCHA alternative startup Are You a Human have been negotiating with professional investors to land early-stage financing to build their businesses. And Allen Kim, founder of baby clothes rental website Bebarang.com, was named College Entrepreneur of the Year by Entrepreneur magazine.

Some 30 startups have had space at the incubator over the last two years, Neal said.

"We’re really focused on helping create the next generation of entrepreneurs," he said. "In that process, we believe that learning by doing is core to that program."

Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.