The glitz and glamour of Washington's new "Gold Coast," the stretch of Pennsylvania Avenue east of 15th Street NW, has triggered a secondary development boom in the old downtown directly to the north, with developers buying up storefronts and parking lots and dreaming of new 10-story office buildings.

For a long time, Washington's old downtown commercial district was neglected by developers, who considered it too far from the newer central business district along K Street and Connecticut Avenue NW. But with annual rental rates in the new projects along Pennsylvania Avenue reaching as high as $38 a square foot, developers now are fighting for sites along E Street between Sixth and 13th streets, and the blocks between E Street and the avenue.

"The market has gone extremely quickly in the downtown," said Ellen McCarthy, executive director of the D.C. Downtown Partnership, a committee of developers, retailers and city officials who are working on improvement projects in the area. "There are site assemblies going on in every block."

A review of the land transfers shows that many of the city's major developers, and a host of small-time builders, are in the process of assembling sites and negotiating land costs in the old downtown sector.

At the same time, the Pennsylvania Avenue Development Corp., the quasi-governmental agency which has design-review control over several of the blocks north of the section, is beginning to talk with developers about plans for property PADC owns in the area.

The area north of the avenue benefits from "a spillover in attractiveness," said Richard Hollander, senior vice president in the commercial leasing firm of Cushman & Wakefield. "Clearly, that is where the city is headed."

There are nearly 2 million square feet of office space under construction in the area, including the sites along the avenue, as well as 112,500 square feet of retail space.

There are another 105,000 square feet of office space in buildings that have been renovated recently and at least 1 million square feet of additional office space slated to be built in the next two years.

There are also at least five sites either controlled by PADC or developers that are expected to be redeveloped in the next three years.

"It's the single most attractive area of the city and the single most active," said Helen S. Haerle, director of leasing with Quadrangle Development Corp.

The biggest single influence in the area is that of PADC. Its territory extends north from the avenue and includes several of the blocks running north along Seventh Street.

PADC Executive Director M. Jay Brodie said the agency is working closely with developers interested in the area, particularly those who own land in the three blocks between Sixth and Ninth streets and bounded by E and D streets.

PADC has encouraged housing in the area under its jurisdiction. But as land prices along Pennsylvania Avenue have driven out hopes of affordable housing, the agency long has hoped the blocks to the north of the avenue would yield moderate-priced housing.

Brodie said PADC has specific housing goals allocated for each of those blocks and will be encouraging developers to meet those targets.

In the cases where PADC owns the land, the corporation can award contracts that meet its housing goals.

The Lansburgh's Department Store site is considered prime for development in that area, though developers say the requirements PADC is expected to put on any redevelopment there could make the project less profitable.

Brodie said PADC would like to see the building facade, and possibly parts of the interior, restored.

The developer also would have to provide 50,000 square feet of space for community arts, as well as 225 housing units.

Brodie said there will be about 125,000 square feet of space that could be developed on the site and that PADC will be seeking proposals in the next few months. Quadrangle recently announced plans to purchase the Central Liquor Store site and several other parcels on the corner of Ninth and E streets.

The company has plans for an 11-story building with 200,000 square feet of office space and 15,000 square feet of retail.

Herb Rothberg, the owner of Central Liquor, who assembled the site by buying up storefronts around his business, said he may move the volume liquor store back onto the site when the building is completed or move to another site on the same block.

At the same time, Oliver T. Carr Co., one of the city's major developers, is working on assembling the next block to the west, bounded by 10th, 11th, E and F streets, while Manufacturer's Life Insurance Co. is working on assembling a site one block further to the west.

While developers fight for sites, however, retailers in the neighborhood and the nonprofit arts groups that are clustered along Seventh Street say they are concerned that redevelopment will drive them out.

"The city's vision for having its own working artists, the nonprofit art groups, here on Seventh Street, will be in trouble unless the city presses the developers to make some provisions for us," said Jock Reynolds, executive director of the Washington Project for the Arts.

The building WPA occupies on Seventh Street is under contract to be sold, and Reynolds said it is unclear if the group will be able to remain in the building or be able to afford it if the new owners remodel.

For the small retailers that own their own buildings, such as M. E. Swing Co., which sells coffee at 1013 E St., the redevelopment of the downtown could bring blessings as well as problems.

Land records show that Carr has paid as much as $1,000 a square foot for land in the 1000 block where Swing is situated, with other parcels ranging from $460 to $827 a square foot.

Even with prices like that, however, Patricia Swing is ambivalent about selling her business.

"We've been here since 1916, and I've been working in this store since the 1940s," said Swing. "I love this area and, because we have a roasting plant here on the premises, it would be harder for us to relocate than other retailers."

Swing said it is clear, however, that the area is being transformed rapidly, and that she knows she will have to decide on whether to sell within four years.

Central Liquor's Rothberg said he plans to add some gourmet products to his liquor assortment, while keeping the store's policy of selling volume amounts of liquor and wine at cut rates.

For other retailers, particularly those that cater to less-affluent consumers and those that do not own their own buildings, the redevelopment is expected to bring higher rental rates and displacement.

D.C. Planning Director Fred L. Greene said the city is concerned about the retail businesses in the old downtown but is generally supportive of the redevelopment that is occurring.

"It's a welcome opportunity," Greene said. "Those buildings in the area north of Pennsylvania Avenue have outlived their term; many of them are obsolete. We have been pushing redevelopment of that area for a long time. There are lots of things happening now, and they are positive."

Groups concerned about the historic preservation of some of the buildings in the old commercial downtown say, however, that they are worried about the pace of the redevelopment and hope they can get developers to agree to keep as many historic facades and buildings as possible.

PADC has made preservation one of its goals and has encouraged retention of facades or historic rehabilitation on many of the blocks under its jurisdiction. The area is part of two historic districts: one of the old commercial strips that run along F and Seventh streets, and one that encompasses Pennsylvania Avenue and the blocks to the north.

Kim Hoagland, a member of the D.C. Preservation League, said: "Many of the buildings in that area are heavily altered and don't connect to any others, and those we are less interested in trying to preserve. At the same time, however, you lose a lot in scale and visual interest, which we know will not be replaced in the new buildings. The redevelopment is worrisome, and we'll be watching it carefully."