Intense work by city and business leaders has revitalized East Cambridge, a neighborhood that has long strived for economic strength. But the much ballyhooed rebound has been stalled by the economic malaise which is plaguing the nation, according to business leaders.

When the vacancy rates for the greater Boston Area were released late last year, East Cambridge was one of the only regions to see a significant drop in its vacancy rate.

"There has been major investment in the area in the private and public sector," says Elizabeth G. Flemings, project planner for Cambridge Community Development. "East Cambridge has the lowest vacancy rates in the city."

East Cambridge has an overall vacancy rate of 7.7 percent, lower than the rates of Harvard Square, 21.9 percent, and Alewife, 22.2 percent, according to the December 1991 survey.

"The transition has been stunning," says J. Roger Boothe, director of urban design for Community Development. "Twelve years ago the area was a multitude of parking lots, vacant warehouse buildings, and banks were unwilling to lend."

Booth attributes East Cambridge's rebound to a 1978 city plan for revitalizing the area.

The city acted as a major catalyst for commercial development, says Barney J. Hintlian, an executive vice-president of the Marcus Organization.

"The city's master plan designated the area, and city, state and federal money stimulated private the area," he says.

The area's proximity to MIT has helped its economic growth, says Paul B. Casey, director of real estate for Com-Energy Services.

"East Cambridge's attraction is MIT," he said. "A lot of the incubator industries like biotech are located here."

East Cambridge is a mixed-use area which has also undergone residential and retail development, Casey says.

The CambridgeSide Galleria, which opened in September 1990, has answered a need for retail facilities in the area, according to Casey.

Three major condominium projects--Thomas Graves Landing, River Court, and the Esplanade--have also been built, he notes.

But the edge of the growth has been taken off. Like nearly every community in Massachusetts, the neighborhood has been hit by the recession.

"East Cambridge is hurting just as bad as other areas" says Norman F. McIver, senior vice-president of Cambridge Trust. He notes that the real-estate market is being heavily affected by the recession.

"Rents have come down considerably across the board," he says. "Landlords are willing to negotiate lower rents with people whose leases have recently come up."

The main reason for the stalled development is the widespread "credit crunch," according to David E. Clem, a partner of the Athenaeum group. "Banks have overextended themselves from commercial lending," he says.

Flemings says that because the East Cambridge riverfront has almost been completed, future development would take place inland.

"Right now nobody's building," she says. "When the economic situation improves, the area where you can expect to see it first is Kendall Square."