Impacts on commercial real estate
The sunset is reflected in the windows of the US Capitol as a man runs on the National Mall in Washington, DC, on October 1, 2025, the first day of the US federal government shutdown.
Andrew Caballero-reynolds | Afp | Getty Images
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When the government shuts down, real estate watchers tend to focus first on the impact to the residential market. Potentially thousands of home sales will be held up because the federal flood insurance program is no longer able to issue new policies; the Federal Housing Administration, Department of Veteran Affairs and Department of Agriculture might slow or suspend their mortgage processing; and the IRS might not process tax transcripts or income verification documents as quickly.
But the impact to commercial real estate, while not quite as immediate, is much more far-reaching. A government shutdown delays government data on the economy. It causes uncertainty in the financial markets and, consequently, commercial real estate dealmaking, especially for small businesses. It also hits investor confidence. Finally, but most immediately, it causes a pullback in consumer demand for certain sectors.
According to a post from the Commercial Real Estate Alliance (CREA), potential ramifications include:
- Reduced demand for CRE as businesses and government agencies delay or cancel leasing and development projects.
- Greater difficulty for CRE investors and developers to obtain financing and conduct transactions amid uncertainty and market volatility.
- Delayed approvals of permits or other government sign-offs necessary for CRE development projects.
Economic data
The government shutdown meant there was no release of the September monthly employment report from the Bureau of Labor Statistics. That affects investors who need this kind of data to make decisions about the state of the economy and interest rates.
If the shutdown continues, the Census Bureau will not release economic data on construction spending, housing starts and building permits. Those are all key for multifamily investors.
CRE finance
Market uncertainty leads to tighter credit from lenders and potentially higher risk premiums on deals, especially if they have anything to do with federal programs.
“Investors in general and lenders specifically look for stability, and when there’s political instability, it always creates more caution about making investment decisions and lending,” said Ran Eliasaf, founder and managing partner of Northwind Group, a real estate private equity and debt fund manager. “We think the biggest risk to underwrite is political risk. It’s true for the federal level, like government shutdown, and it’s true for local, like the New York City mayoral election.”
Retail, hospitality, senior housing
Looking at specific sectors, retail and hospitality will see the quickest impact because they are entirely consumer driven. Consumer spending, especially in areas where there is a high concentration of federal workers, could drop as employees are furloughed or even laid off.
“I think that’s a big risk,” said Christine Cooper, chief U.S. economist and managing director at CoStar, a commercial real estate information and analytics firm. “Think about all the small retailers and coffee shops. They have very slim margins, so they’re more likely to be disrupted if they lose their customers. They won’t be able to afford it, and you’ll see some closures in pretty short order.”
It’s a similar situation in hospitality, where closures in government services and at national parks will impact tourism. Washington, D.C.’s tourism has already been hit by the administration’s activation of the national guard and other federal troops. This is just one more strike against the city.
Skilled nursing facilities and senior care properties could also see deal delays. Those, along with affordable housing projects, use financing from the U.S. Department of Housing and Urban Development (HUD).
“I think [for] HUD financing, the queue will get longer. Applications will not be processed,” said Eliasaf.
Federal CRE
The federal commercial real estate market will take the hardest hit, as sales of those properties, which are managed by the General Services Administration (GSA), will either be…
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