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Both of these sizes have plenty of sidewall so your 'smoother ride' is going to come down to the specific tire selected. An E rated mud terrain is going to be worse on the street than a C rated all terrain, a cheap off-brand tire is generally going to be worse at everything than a reputable brand/model, etc.265/70/r17
vs
275/65/r18
which one would be a smoother ride as a daily driver in urban streets?
Agreed about the initial cost. Why spend more, assuming someone actually likes the factory GX wheels with 33"+ size tires. But as a rule I don't think any one ever puts oversized off road tires on stock Lexus wheels, factory TRD wheels that come on some of the Toyota's, yeah, but not Lexus. So, speaking for myself, if I'm in the market for new wheels for off road, between the two sizes I'd chose the 17" wheels over the 18" wheels any day.17 inch tires are cheaper but that requires the initial cost of getting 17 inch wheels. Both of these are upsized from the OEM and will probably require a little bit of trimming/fender liner massaging if you are on factory suspension. I have 265/70/17s at stock height and had to trim quite a bit off the front of the rocker panel/sidestep. The 275/65/18s are like half an inch larger than the 17s so you may need to do a bit more.
Depending on how budget conscious you are, you can do this for $100-ish, net. Hit up your favorite marketplace app for used 17" 4Runner/FJ Cruiser/Tacoma take-offs, and sell your 18" OEM rims (for ~$250, seems to be about the going rate). I paid $350 for TRD Off-Road rims, including lug nuts and center caps, a few bucks for some black wheel paint, and there you are. If you wanna drop $1,500 on new rims, you can, but you don't have to....17 inch tires are cheaper but that requires the initial cost of getting 17 inch wheels....