While still outperforming the broader market in 2012 so far, REITs September performance was negative. The FTSE NAREIT US Real Estate Index showed that equity REITs were down 1.23 percent and all REITs were down by 0.89 percent.
"I think the biggest take away about September was that it was a month where people came back from summer vacations and you saw the S&P make a move up, risk was on, and REITs lagged as they were potentially used as a source of cash," said Anthony Paolone, analyst with JP Morgan, in an interview with REIT.com.
September followed a lackluster August 2012 where equity REITs witnessed small gains in comparison to previous months. In August equity REITs gained 0.12 percent, while the REIT market as a whole gained 0.46 percent.
Paolone added that while REITs were outperforming the broader market up until a couple months ago, the recent rally in the broader market has "flip-flopped the performance as investors may be looking for more cyclically levered plays."
He sees a continued rally in the broader market as a possible cause for concern for REITs.
"I think the biggest fear is how REITs are fitting into an equity market if people move to a risk-on mode," he said. "This is typically one of the biggest challenges we see, not because businesses would not perform well but because of fear of rotation out of the REITs and into other parts of the market."
However, Brad Case, NAREIT's senior vice president for research and industry information, said while REITs were down in September, he said it's not uncommon adding that not every month REITs will outperform.
"In a normal REIT bull market, for every two positive months, there is one negative month," he said. "Although REITs have lagged behind the broader market in the months of August and September they haven't as whole."
Additionally, he said in the current REIT bull market the total returns for REITs, on average, has been about 20 percent in the last 12 months.
Looking ahead Case predicted that the economy will improve, but he said it will continue to grow at a slow pace.