Real estate owners, fasten your seat belts. In its first quarter 2009 “Korpacz Real Estate Investor Survey” PricewaterhouseCoopers notes survey participants, who represent a cross section of institutional equity real estate investors, have described current market conditions as “the most challenging environment ever encountered.” Yet investors anticipate the worst of the downturn is yet to come.

“You may not see a significant recovery in retail until 2011,” says Susan M. Smith, director in the real estate group of PricewaterhouseCoopers and editor in chief of the survey.

Investors estimate cap rates for regional mall properties in the U.S. currently average 6.99 percent, up 3 basis points from the estimate for the previous quarter. Over the next six months, investors expect to see cap rates increase by 65 basis points in the sector.

Power centers, which have been hit with a disproportionate number of retailer liquidations and store closures recently, are not faring much better. Investors estimate that in the first quarter of this year, cap rates on power centers averaged 7.98 percent, representing a 14-basis-point increase from the fourth quarter of last year. Investors expect that figure to rise by about 74 basis points by the third quarter of 2009.

Out of the three major retail property types, neighborhood centers are currently experiencing the highest demand due to the perception that they are somewhat protected from the recession. Today, neighborhood centers are estimated to have average cap rates of 7.63 percent, up 41 basis points from the previous quarter. Over the next six months, investors expect cap rates to rise by another 46 basis points.