Real estate investment trusts have underperformed the general market's S&P/ASX 200 in September for the third straight month.
Analysts said while the performance of the sector has been solid, the weakening outlook for office leasing and some retail exposure has resulted in a flight out of the sector.
This is also despite the very large cash flow into the commercial property sector of more than $5 billion for the three months ending September.
For the year to date, REITs have underperformed the ASX 200 by 7.5 per cent year to date and 8 per cent on a year's rolling basis despite the sector delivering solid total returns of 8.8 per cent and 16.2 per cent over those periods.
According to analysts at JP Morgan, while the long-bond rate fell 8bps during the month, lingering weak tenant demand in retail and office markets and a stronger equity market resulted in the REITs underperforming in September.
"Residential REITs have continued their strong recent outperformance with FKP up 10.4 per cent, Australian up 8 per cent, Mirvac up 5.8 per cent, and Stockland rose 3.8 per cent, while the REITs with large office exposures, DEXUS Property GPT Group, Commonwealth Property Office Fund and Investa Office Fund, all underperformed," the analysts said.
Other analysts said lack of corporate activity, the uncertainty from the lead-up to the federal election and the flat leasing sector has kept the sector quiet.
REITs are also engaging in share buys which analysts have said are having limited impact.
The analyst at Commonwealth Bank, David Lloyd, said that buybacks have had no positive impact on the trading performance of DEXUS, GPT or Westfield, and note all have underperformed the S&P ASX200 A-REIT Index on a monthly, quarterly and year rolling basis.
"We believe buybacks for DEXUS and GPT are the best acquisitions they can make in the current environment, given: earnings per security accretion between 1.5 per cent and 2 per cent; there is no stamp duty, and the portfolio quality is maintained," Mr Lloyd said. "The two REITs are offering longer-term relative value, while Goodman remains our preferred global exposure over Westfield."