Despite strong market fundamentals, pessimism among Canada’s commercial real estate leaders continues amidst concerns about the future of the country’s economy.

According to a 2013 third quarter survey by the Real Property Association of Canada (REALpac) and FPL Advisory Group, there is also growing concern about the impact of higher interest rates.

“Higher interest rates and higher volatility in the equity markets will likely make for more challenging times in the coming year,” says survey participant, Allan S. Kimberley, who is vice-chairman and managing director at CIBC World Markets. “Perhaps this will lead to a greater separation in values between higher and lower quality assets. This range compressed significantly during the recent period of high liquidity in debt and equity markets.”

The quarterly survey measures the current and future outlook of Canada’s top commercial real estate executives on overall real estate conditions, values and availability of capital. Commercial real estate leaders also indicated they expect interest rates to increase in the coming year. Both capitalization and interest rates are expected to counteract strong demand for real estate.

“The expectation of rising interest rates will push capitalization and yield rate requirements up, and that will likely slow transaction and flatten asset value trends,” says survey participant and president of Grover, Elliott & Co. Ltd., Larry Dybvig.