By LERON KORNREICH

A budding skyline can be spotted across the Hudson River marking the tremendous evolution of New Jersey's "Wall Street West." The acres along Jersey City's coastline, once abandoned and decrepit, are sprouting skyscrapers and luring companies like Goldman Sachs and JP Morgan Chase to plant roots in the Garden State's second largest city.

But the picture is not entirely rosy. A number of companies that announced their plans for Jersey City with much fanfare before Sept. 11 have ended up downsizing significantly since. The economic downturn has led companies to put the brakes on many projects, scale down others and sublet existing office space. The vacancy rate has shot up to 12.9%, according to Cushman & Wakefield statistics. That number might soar above 18% depending on how much space Goldman Sachs and UBS PaineWebber place on the market once construction is completed on buildings they were supposed to occupy in entirety. UBS is already formally marketing 500,000 square feet.

The Lefrak Organization is credited with single-handedly rejuvenating the Newport section of the city just outside the Holland Tunnel. In the eighties, Newport Office Center I got the ball rolling and soon buildings II-VI were standing tall.

The rise of office buildings in Newport was followed by development a few blocks south at Exchange Place. Newport Office Center III was entirely leased prior to completion. JP Morgan Chase leased Newport Office Centers V and VI. But by the time construction on Newport Office Center VII was underway, the tide turned. UBS PaineWebber leased the 1.1 million square foot building but finds itself with more space than it needs because of the slump in the financial services market.

"Because of the velocity of rents in Manhattan and because of the scarcity of space, people were taking more space than they needed based on their growth projections and the lack of availability," explains David Stifelman, a director in the commercial brokerage division of Cushman & Wakefield. "Well, you know what happened. Everyone hit a wall."

Perhaps the most excitement was generated by Goldman Sachs' plans to build what will be the tallest skyscraper in New Jersey. The office tower is slated to open in spring 2004 but plans are on hold for a retail atrium and for a mixed-use facility that was supposed to include a conference and training center, office space, and a hotel. Goldman Sachs would not confirm it, but according to brokers the company has already cut the number of employees scheduled to relocate by more than half. Goldman spokesman Bruce Corwin says the number of employees that would be transferred to the Jersey City facility is in flux.

"There's still enthusiasm about Jersey City. It's just that we launched this project at sort of the height of the bull market and market conditions have changed drastically since then. And so, while we're still enthusiastic about Jersey City, we can accommodate a larger part of our workforce in our existing facilities because our workforce is smaller." The company's overall headcount dropped by 13 percent last year.

Uncertainty has put many projects in limbo until the pulse of the economy strengthens. Hartz Mountain Industries had fully leased 70 and 90 Hudson Street by the time Jersey City began feeling the pinch of economic downturn. The developers are putting plans for 77 Hudson Street and Journal Square Plaza III on hold until a commitment from an anchor tenant can be secured.

Lehman Brothers' plans for 101 Hudson Street also changed. The company is seeking to sublet the 400,000 square feet it leased in the multi-tenant building. Only half of Mack Cali's thirty-four story Harborside Plaza 5 is leased. Tenants include Forest Labs, SunAmerica Asset Management Corp, Garban, and TradeWeb. The latter two relocated from New York City. Mack Cali leased the 577,575 square foot Harborside Plaza 10 to Charles Schwab but before the building was complete, Schwab was seeking tenants to sublet. Stifelman points out the company has only succeeded in subletting half the building's office space.

"The pricing has been a freefall and most of these people are prepared to do what it takes to get the space off their books."

But the scenario is not as bleak as it was during the eighties, according to Stifelman. "Most of the people that develop are either REITs, very wealthy individuals, pension funds, and most of the buildings were pre-leased."

Much of the Gold Coast's future hinges upon its ability to compete with Lower Manhattan, according to Glenn Brill, Senior Manager at Ernst & Young Real Estate Advisory Services Group. Jersey City's edge might be undercut as developers rebuilding the financial district offer incentives and competitive rental rates. Brill said Jersey City's other advantage used to be new construction but, as the World Trade Center site is redeveloped, Lower Manhattan will offer new construction as well. "I think you can expect Lower Manhattan to compete very strongly for tenants and if they successfully enhance the transportation infrastructure in Lower Manhattan, it could be a formidable competitor."

As the commercial market sags, the residential market remains resilient, according to Dan Frohwirth, Director of Real Estate for the Jersey City Economic Development Corporation. Tenants are signing leases at Liberty View Towers after the opening of the first of two 28-story waterfront luxury apartment buildings. Another luxury apartment building, Marbella, is in the works.

As the neighborhood gentrifies with the arrival of thousands of professionals, the demand for restaurants, bars, and shops has increased. Cosi, Starbucks, and other yuppie favorites have opened shop. Target is opening a store by taking over existing space. The Lefrak Organization is constructing a six story building with retail space and offices for specialists like lawyers and doctors.

Jersey City's proximity to Lower Manhattan and economic incentives are key factors in attracting commercial tenants. The PATH train system allows for easy access to Manhattan as do ferries run by New York Waterways. The Hudson-Bergen Light Rail is still in its infancy but the Jersey City end of the line is complete and in use.

Jersey City's draw is still strong, according to Stifelman. "You will find out it is much less expensive to operate your building in New Jersey. If you don't have to be in Manhattan but want accessibility to Manhattan, to draw upon the labor pool, and for business purposes, it's the best alternative."