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Low-cost debt, demand for income, demonstrated capitalization rate compression and REIT distribution increases have allayed some investory skepticism. In this photo, H&amp;R REIT is planning to Acquire Two Gotham Center, a State-of-the-Art Office Tower in New York.<br />

One of Canada's most bullish analysts on the real estate investment trust sector has become decidedly less so.

Alex Avery, an analyst at CIBC, has reduced his recommendation on the REIT sector from overweight to market weight.

While "everything is fantastic" in the industry at the moment, and returns are strong, that's reflected in unit prices now, and the big runup is over, Mr. Avery said.

Average total returns so far this year have topped 19 per cent, and he expects that for the total year returns will be between 15 and 25 per cent. Those will be driven by factors such as strong property fundamentals, low-cost debt, demand for income, distribution increases, pension and life insurance company demand for property, and foreign investment, he said.

He is expecting further merger and acquisition activity in the year ahead, including potential privatizations.

REITs remain attractive, he added.