Orange County Builds
Upward to Move Forward

Sprawling over 800 square miles between Los Angeles and San Diego, the seemingly endless suburb of Orange County is running out of space. That factor is changing the face of development and turning the region into one of the country's strongest real-estate markets.

Lennar's A-Town project, planned for an older industrial district of Anaheim, Calif., is expected to include 14 residential towers ranging from 23 to 38 stories high. It will also include retail space.

Santa Ana alone has approved four residential towers 18 stories or higher in the last 18 months as well as a 37-story office building, said Steve Harding, deputy city manager for development services. "This is a new product type for Orange County," said Mr. Harding, noting that the city's tallest office building is 16 stories high, while residential buildings are lower. "We're out of land."

The land shortage, environmental regulations, above-average job growth and a rising population are the stuff of many a real-estate mogul's California dreams, and nearly every type of property has benefited. Third-quarter office, apartment, warehouse and retail vacancies were all well below average, while all but the warehouse sector posted above-average rents, according to Property & Portfolio Research Inc., a Boston real-estate research company.

Office property values have nearly doubled from the $144 a square foot fetched in 2002, below both the national and Western region averages, to the $232 average a square foot paid this year through Nov. 1, in line with the $233 average of the Western region and about 22% higher than national levels, according to Real Capital Analytics in New York.

Powerful economic drivers show few signs of cooling. The population rose at a 1.3% annual clip for the year ended in September, outpacing the nation's 0.9% growth rate, according to consulting company Economy.com. Home to a diverse group of employers and a strong tourism sector, the area's annual job growth of 1.9% for the period edged out the nation's rate of 1.6%.

While developers are ramping up plans for office development to meet the demand, the area's exposure to the mortgage-finance industry could pose a risk if the nation's housing market continues to slow. Ameriquest parent ACC Capital Holdings Corp. said last month it was reducing its workforce by 10% because of higher interest rates. The company declined to specify how its Orange County headquarters would be affected.

The skyrocketing cost of the California good life means it is in danger of pricing itself out of reach. With a third-quarter median home price of $710,700, Orange County is the country's second most expensive market after San Francisco, and business costs are 18% above the national average, according to the National Association of Realtors and Economy.com. The region has lost the headquarters of engineering company Fluor Corp., which is relocating to the Dallas area next year.

Miami home builder Lennar Corp. sees higher densities as an answer to the area's thirst for affordability, said Emile Haddad, president of the company's western region. Next year, Lennar plans to begin developing a 3,813-unit complex called A-Town in an older industrial area of Anaheim anchored by Angel Stadium. The project, which is expected to include condominiums priced from $300,000 to about $1 million, will contain retail space and 14 residential towers as high as 38 stories, he said. "It's like dropping a downtown in the middle of Anaheim," Mr. Haddad said.

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