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A man stands on the seawall overlooking False Creek in Vancouver. Confidence among commercial real estate leaders has sunk to its lowest level since 2009, as pessimism about the state of the economy has risen.Rafal Gerszak/The Globe and Mail

Confidence among commercial real estate leaders has sunk to its lowest level since 2009, as pessimism about the state of the economy has risen.

That's the finding of the Real Property Association of Canada's fourth-quarter Canadian sentiment survey, which is being released this week. It seeks to gauge the outlook of many of the industry's top executives on topics such as current real estate conditions, prices and the availability of capital.

Many of the executives, who run the gamut from shopping mall and office owners to lenders and asset managers, said they expect fewer deals to get done in the next while and they expect asset values to come down over the course of the next year.

"I don't think the economy can support dramatic increases in rental income, so as cap rates rise, values will see some easing," Ronald Findley, regional director of Great West Life Assurance Co., told the survey. Cap rates, or capitalization rates, measure the return that an owner can receive from a real estate asset by comparing the operating income from that asset (rent tenants pay minus the landlord's expenses) to the price that was paid for the asset.

"With so many unknowns in the picture right now, including the U.S.'s slower-than-expected recovery, it's no surprise that there's a mixed bag of sentiments among property leaders right now," said Carolyn Lane, vice-president at REALpac.

Indeed, there was some optimism among the group of real estate leaders surveyed.

"This last quarter we had expected to see a softening in the residential and office marketplaces, but they still remain surprisingly high," said Kevin Miyauchi, president of Miya Consulting Inc. "Each quarter I expect to see a levelling off, or a mild correction, but it has yet to materialize in the numbers."

But most of those surveyed during the month of October had a glass-half-empty mentality.

Economists have ratcheted down their expectations of economic growth for the next two years. The hit that real estate investment trusts took on the stock market over the course of the summer has had an impact on the market.

"For those of us in the REIT world, we've seen unit prices off typically 10 to 20 per cent," one unnamed real estate investment trust executive said. "The issue is not availability, the issue is pricing. All the REITs are upset at the current pricing of their equity."

REITs had been on a tear until long-term interest rates began to rise in May. REIT share prices then fell, in part because investors worried about rising mortgage costs, and in part because the number of relatively high-yielding securities that investors could choose from rose.

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