Public vs. Private: Where Will Cap Rates Clear in 2026?

February 18, 2026

Executive Insights Finance Investment National

Cohen & Steers’ Seth Laughlin examines refinancing pressure, spread dynamics and the risks facing valuations this year.

Public and private real estate markets continue to send diverging pricing signals. Listed REITs reprice in real time, while private-market values adjust more gradually through appraisals, negotiated transactions and third-party estimates, often creating a valuation gap that shapes capital allocation decisions.

In this interview with Commercial Property Executive, Seth Laughlin, senior vice president of real estate strategy & research at Cohen & Steers, describes how price-setting power shifts across property types and what that divergence implies for cap rates in 2026. He also discusses where refinancing-driven repricing is most likely to surface, which public-market signals offer the clearest clues for private valuations and the downside risks that could challenge a recovery.

READ ALSO: Commercial Real Estate Predictions

How do you think about measuring the public-private valuation gap in today’s market, and what are the most reliable indicators on each side?

Laughlin: REIT implied cap rates offer a single source of data for public values, while private market cap rates have multiple sources. Appraisal cap rates are lagged by design and historically have shown much smaller changes at inflection points in the cycle. Transaction cap rates have a similar challenge with lagging data points, as clearing prices are often negotiated months before the deal is reported. Research data providers like Green Street offer more timely private market cap rate estimates.

In today’s market, who is effectively setting pricing across property types, and how are cost of capital and net asset value dynamics influencing cap rates and transaction activity?

Laughlin: Marginal price setters vary across property types. Those sectors where REITs are trading above their estimated NAV have a cost of capital advantage and can be more active in the market. A good example of that is the senior housing sector.

Apartments sit at the other end of the spectrum, with discounts to NAV restricting their ability to grow, and are more likely to sell in this market. The private market is much more optimistic on apartment fundamentals and is willing to pay cap rates below what makes sense for REITs. Of course, there will be exceptions to both examples, but the theme holds.

Below historical average, annual performance over the last three years, along with enthusiasm for private credit, have created a more challenging capital raising environment for commercial real estate. That should change as economic strength broadens out from AI, and we expect the positive attributes of real estate’s stable income and value to garner more attention.

What’s your base case for how the public–private cap rate gap will evolve in 2026, and what specific catalysts could drive that convergence?

Laughlin: Private values are most likely to come down in the apartment sector. As mentioned earlier, the private market is much more optimistic that rent growth will rebound as supply abates. But as we are seeing, demand is becoming more of an issue. As that recovery gets pushed out, we expect cap rates in the private market to rise in 2026. More broadly, we expect REITs to continue the strong start to the year, and implied cap rates should fall, closing the gap with private market cap rates.

Transaction activity appears to be stabilizing. What factors are driving the recovery, and what early indicators suggest momentum can continue into 2026?

Laughlin: The recovery in transaction activity has already begun. Life insurance companies and the CMBS market played an important role in debt availability over the last two years and that should continue to grow. Banks are coming back to the market and that should continue to add to an improving debt market. The Fed rate cutting cycle has not had as big an impact on the long end of the curve, but the 10-year has been relatively stable, which helps market participants’ visibility.

Spreads have also been a tailwind for most sectors and should help support more transaction activity. Office is a timely sector as we will see greater visibility in operating fundamentals that allow private investors to get more comfortable with out-year growth estimates. But in the public market, we are seeing concerns over AI’s impact on office-using job growth drag values lower. The ultimate impact will be difficult to predict, but the private market will be later to price in these concerns, and I expect values to firm up. That sector should continue to see both seller capitulation and a bigger buyer pool.

With that said, private investors should watch the listed performance for direction. We saw a similar trend in 2016-2017 when e-commerce concerns were first priced into mall and shopping center REITs before the private market responded years later.

How are debt spreads evolving across property types, and where do you expect refinancing pressure to drive the most repricing in 2026?

Laughlin: Debt spreads have narrowed across most property types, particularly industrial and apartments. There isn’t much more room there to fall, but sectors like shopping centers could see further spread tightening. The sector gains favor amongst investors as occupancies hit cycle highs and rent growth beats expectations.

There are two sectors that come to mind as it relates to refinancing-driven repricing. First, office continues to deal with legacy deals that were underwritten before COVID-19 impacted fundamentals. Those deals will require restructuring and additional equity contributions, but the good news is that investors have seen a rebound in sentiment, admittedly off very low levels. Apartment underwriting was very aggressive at the peak of values before the Fed started raising rates, and there will be both stabilized and development deals that will require some pain to be taken.

Which market indicators do you find most useful in anticipating private-market cap rate moves, and where do investors risk misreading the signals?

Laughlin: No two cycles or sectors behave the same, but some trends are worth watching. Transaction comps are lagging but can be confirmatory of emerging trends. Credit spreads are a good measure of the price of risk and can translate to a move in cap rates. If, for example, more risk to apartment growth appears, the access and cost of debt could move before cap rates and would be something to watch. Implied cap rates are perhaps the most reliable leading indicator, but disconnects can last for years before they catalyze a move in private market values.

What downside risks could most disrupt valuations in 2026, and which asset classes would be more or less insulated if they materialize?

Laughlin: The biggest downside risk to watch for is a meaningful move higher in real rates, as that would more likely translate to a move higher in cap rates. In that event, higher cap rate asset classes would be more insulated, as a 50-basis-point move higher in cap rates is less impactful to 7 cap assets than 5 cap assets. New supply across most property types has peaked, but certainly a rebound or reacceleration would delay the recovery in occupancy and rent growth, and hamper valuations in 2026.