As the midyear point of 2026 draws near, FTSE Nareit All Equity REITs Index total returns are up about 14.2% (as of June 22), outpacing the S&P 500, which has posted total returns just south of 10%.
The performance has helped tighten a divergence that had emerged between the broad equity market and REIT valuation multiples. Coming into 2026, the average ratio of the S&P 500 P/E to the equity REIT P/FFO multiple stood at 1.3, whereas historically it had been 1.0.
However, a second divergence—between appraisal cap rates for private real estate and the implied cap rate for REITs calculated from the FTSE Nareit All Equity Index—has persisted. It’s now been 17 quarters since the divergence emerged. And while such divergences periodically emerge, this is by far the longest stretch for such a gap to persist. The main culprit is that appraisal cap rates (determined by private real estate managers and their outside appraisers) have held relatively steady at around 4.45% for 12 quarters. The Nareit REIT implied cap rate, meanwhile, is now around 5.89%.
One of the starkest aspects of the valuation divergence is that while the Nareit implied cap rate has maintained a healthy spread to the 10-year Treasury rate as those yields have ticked up since 2021, there is almost no spread for private real estate. As of the first quarter of 2026, the REIT implied cap rate sat 169 basis points higher than the 10-year Treasury yield, while the NCREIF ODCE Appraisal cap rate was only 24 basis points higher than the 10-year Treasury. The implication of that is that there is essentially no risk premium baked into the appraised rate vs. the risk-free yield of Treasuries.
Wealth Management spoke with Ed Pierzak, senior vice president of research at Nareit and John Worth, executive vice president for research and investor outreach, about the year-to-date results, the persistent valuation gap and takeaways from Nareit’s recent REIT Week conference.
This interview has been edited for clarity and length.
Wealth Management: As we approach the middle of 2026, where do REITs stand relative to the broader stock market?
Ed Pierzak: FTSE Nareit All Equity REITs Index total returns are up 14.2% while the S&P 500 is up 9.9%. That spread is something we have seen carry throughout this year, even despite the unexpected shock to markets stemming from the war in Iran.
That’s tightened the valuation multiples gap between the broad equity market and the REIT market. Ultimately, we’re seeing a little bit of softness in the tech rally in the equities market. Historically, when that valuation gap with the broader equity market closes, REITs enjoy relative outperformance.
Operationally, performance for REITs is quite good. Occupancy rates remain good. And balance sheets continue to be in great shape. If we look across some of the sectors, one of the big things to note is that the best performing sector to date is lodging and resorts.
In years past, lodging and resorts have not always had the strongest performance. But in terms of operations, the sector has been quite strong with strong overall demand for both leisure and business travel.
The next best performer is data centers, and there’s no surprise there. Overall, we’re seeing strong performance across the board.
WM: The lodging and resorts performance does seem surprising. It seems interesting that travel is holding up despite the spike in oil prices. It seems people have not cut back on traveling.
EP: When you look at the current macroeconomic environment, there can be a degree of confusion. If you look at a handful of variables on one hand, it reads pessimistic. However, other variables look OK. So, we need to wait and see a bit.
WM: Are there other highlights for specific property sectors?
EP: One of the interesting elements is that if you do look at our most recent active manager tracker and their overweights and underweights relative to the composition of the FTSE index, for the four traditional property sectors (office, residential, retail and industrial), active managers are underweight on them all except office.
WM: One small thing that jumped out to me in the active manager tracker was seeing active managers slightly underweight on residential. It seemed for a long time that it was a sector with relative overweights. Is that right?
EP: For many years, it has been a darling. You saw high occupancy rates and rent growth rates that approached double digits at the peak of the most recent cycle. But if you look a little closer today, there is a supply and demand imbalance. Occupancy rates have trended down. But it does feel like it’s nearing a trough on fundamentals, so now if you talk to folks, there is an increased optimism.
John Worth: On another front, active managers moved very significantly into data centers, with allocations moving 600 basis points over the past four quarters. (Data centers now account for 18.5% of assets in actively-managed real estate funds and are at 139% relative to the FTSE index weight.)
What’s striking is that during much of that time, data centers were the worst-performing REITs. (Data center REITs posted total returns down about 14% in 2025). So it’s one of these cases of where you ask how do REIT active managers generate alpha? When generalists move away because of short-term earnings, active managers may see that as a discount for a cash-flowing business and lean in. And they have now been well rewarded for that kind of move.
WM: You also recently held your annual REIT Week conference. How was the mood, and what was the tenor of conversations?
JW: About 2,500 people came to New York, and the mood was quite positive. Obviously, with returns where they have been so far in 2026, that lends an air of positivity. We’re coming off strong first quarter operating results for a broad range of sectors. The question is how that is going to hold up with an economy that is facing a lot of question marks. However, the mood was optimistic.
The read through from management teams is that strong performance is holding up with lodging and resorts, as we talked about, being a great example of resiliency. I think it also speaks to that, on balance, REITs tend to skew toward higher-quality properties within the broader commercial real estate market.
And while the valuation gap hasn’t closed with private real estate, it has tightened with equities, and REIT multiples are meaningfully higher than they were last year. So REITs are feeling like they are on their feet in terms of being positioned for growth and acquisitions.
We also had our largest contingent of institutions at REIT Week. While those often invest in real estate through active managers, many institutions were showing up to meet with REIT management teams themselves. Some were plans that have REIT portfolios today, and others were plans that don’t have REITs and were coming to get more educated.
WM: When we talk to advisors, we’ve been hearing a lot about building “resilient portfolios” positioned to weather increased volatility. Is there a way REITs factor into that equation?
JW: There are a couple of dimensions. REITs are a place where you might pivot from tech if you are worried about tech valuations. REITs own stabilized, cash-flowing properties. So that income can also be part of it. And the other part is that if we do have a slowing economy, there can be real estate sectors that are more resilient. Although that’s where you end up in debates in terms of which sectors will be the most resilient, and it’s something the active management community is actively debating.
WM: Lastly, on the divergence gap between public and private real estate, it does seem remarkable that appraised cap rates for private real estate continue to hold steady, and there is essentially no spread to 10-year Treasuries at this point.
EP: As we wrote in one recent piece, it’s like the appraisal rate is stuck at the 2021 REIT implied cap rate. The curious thing is that over the last few years, it’s like that appraisal rate has hit the ceiling. We’ve made the argument for quite some time that it doesn’t make sense. If you look at that spread to 10-year Treasury—you can’t get a loan for less than a 100 basis point spread to the 10-year. It’s almost as if you are disregarding current market realities.
WM: And I know at one point we talked about how it seemed for a while that the appraised cap rates were looking to wait out interest rates and perhaps a drop in 10-year yields. For a moment, there were expectations of the Fed cutting rates, and then the appraised cap rate could have a spread to Treasuries again. Now that doesn’t seem like it will happen. So, how can this continue?
EP: If you look at FedWatch, right now the probability of a rate increase in the coming months is up to about 35%. That’s a material probability. And as you think about it, as it plays out. At a minimum, rates will stay elevated and there is potential for an uptick.
It seems like there has to be a recognition at some point by appraisers. But what the impetus will be, I can’t tell you. Oftentimes, when you see relationships that don’t make intuitive sense, they last a quarter or two quarters. But this is now a prolonged situation.
Increasingly, it’s being recognized by a lot of parties and observers of real estate. Even though we may not have as active a transaction market as in other periods, it’s time to look at other measures. The REIT spread to the 10-year is healthy. For investment-grade corporate bonds, it’s healthy. But the appraisal cap rate spread stays at this modest level.
With that in mind, we think the REIT implied cap rate reflects current market conditions and expectations, and you just don’t see that on the appraisal side.