"Each day seems to bring more bad news as real estate share prices head south in earnest," RBC noted.
Some of the hardest-hit companies have exposure to the retail sector on signs that consumer spending is tumbling as a result of the financial crisis.
"We believe the biggest issue facing REIT investors today, however, is determining just how bad things are and how bad they might get for commercial real estate," the RBC analysts wrote. "The stocks have clearly already discounted the potentially devastating impact of a closed credit market and the inability of real estate companies to access capital in the near term."
REITs have been slashing their dividends to conserve capital, and companies with the highest leverage ratios are seen as most vulnerable.
The sector's woes are highlighted by General Growth Properties Inc. (GGP), the mall owner that has seen its shares lose 99% this year. The stock was recently booted from the S&P 500 Index (SPX) after it warned it may seek bankruptcy protection if it can't refinance or extend its debt.
The sell-off clearly shows that investors see more tough times for the sector.
"Commercial real estate stock prices also appear to have discounted significant drops in fundamentals over the coming year," RBC said.