What are the public markets telling us?

Public markets are historically an accurate leading indicator for private real estate in both downturns and recoveries—and our reading of both markets today suggests that this cycle is holding to that script. More importantly, public markets can also serve as an important barometer for secular shifts. With that in mind, it’s worth noting that U.S. listed REITs are off to their second-best start to the year since 1999 at +10.5% and February, when AI concerns intensified, was the best February on record at +7.5%. Public equity real estate has outperformed S&P 500 by +984 basis points (bps) and the NASDAQ by +1,291bps, marking the strong relative start on record. *1

The rally has been broad-based, with 14 out of 18 REIT subsectors posting positive returns in 2026. Data Centers (+22.3%), specialty (+18.1%), and triple nets (+18.1%) stand out, while office has continued to struggle due to challenges to fundamentals and concerns that AI will further reduce net hiring and demand for space. Additionally, it is worth noting that real estate brokers, which sit outside the REIT index, are down on average by more than 10% this year due to AI disruption concerns. 

Bottom line, not every property type has been immune to AI headlines, despite the sector continuing to perform well. 

We believe the primary driver of U.S. listed REITs’ absolute and relative outperformance has been their long-term contractual lease structures, which provide earnings stability and reinforce confidence in the durability of long-term demand for the asset class. 

So, what comes next? The other years that round out the top five best starts since 1999 ultimately finished up +29% in 2019, +28% in 2014, +25% in 2006, and +32% in 2004. The notable exception was 2007, when the sector began the year up +6%, the sixth-best start on record, but ultimately finished down -15.7%. The key difference, then, was that U.S.-listed REITs were coming off a +173% cumulative run from 2003–2006. Today, the sector is down -10% cumulatively from 2022–2025*1. Very different starting points: late-cycle versus early-cycle. Indeed, we argued in our 2026 Annual Inside Real Estate Outlook that the commercial real estate (CRE) cycle has moved into recovery by nearly all traditional measures.

What are our views on private real estate?

The short answer is that recent AI developments are poised to influence CRE by shaping both fundamentals and performance. We think dispersion in returns, the key theme of our 2026 global real estate outlook, will increase as the divide between well-positioned properties and others accelerates. Asset selectivity will become increasingly important, as investors and tenants focus on higher-quality properties that can fully capture AI-driven advantages. In business-driven sectors such as office and life sciences, AI may accelerate existing trends by tempering hiring growth and space demand. By contrast, consumer-driven sectors, including residential, retail, and industrial, could benefit from productivity gains and income growth, provided AI supports broader economic expansion. Sectors where AI enhances output and earnings potential should see relative resilience, while those tied to industries facing structurally higher unemployment or workforce displacement may encounter more sustained demand headwinds.

However, these are blanket statements and nuances are required across sectors. For instance, there are certain office markets and submarkets that may benefit from AI as new tenant demand emerges even as the broader office sector may face headwinds—there have been several recent major office commitments where AI tenants have signed long-term leases in San Francisco. Additionally, people need a place to live making both housing and essential retail more resilient; conversely commodity Class A apartments could suffer from higher AI driven unemployment.

We think Cushman & Wakefield’s AI Impact Barometer is a very useful tool. It covers nine categories – four of which are macroeconomic-focused and track the evolving impact of AI on the broader economy while the five other categories are key real estate sectors. Each category and its underlying indicators are color-coded based on a set of Momentum Scores that reflect the direction and pace of AI’s emerging impact on that category or indicator. Importantly, it addresses the nuance required when analyzing the impact of CRE.

From a portfolio management standpoint, the private equity model appears relatively safe in the near to medium term if for no other reason than the business operates in less liquid assets that can't be "traded" as easily as public securities. It’s harder to automate the asset management of private real estate. However, we think managing diverse portfolios for our clients will remain key to our investment thesis. This does not mean generically owning various property types but rather investing in the right property types in the right markets. Those that anticipate the impact of AI not only more broadly (by property sector), but also nuanced impact (within property sectors) will be the winners and are likely best positioned to deliver relative outperformance. 

Bottom line, AI is likely to intensify the next phase of performance that will hinge on property fundamentals and effective asset management. Maximizing net operating income is critical as it will likely drive both income returns and capital returns in a higher for longer rate backdrop where cap rate compression is limited and disruption is higher than prior cycles. Structural themes will remain important, but clearing return hurdles will require a sharper focus and execution.

Disclaimer

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*1 Source: U.S. FTSE NAREIT All Equity REITs, Bloomberg, as of 27 February 2026.

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