The sunset is reflected in the windows of the US capitol, while a man on October 1, 2025, the first day of the US federal government's shutdown, runs on National Mall in Washington.
Andrew Caballero-Reynolds | AFP | Getty Images
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and developing opportunities for real estate investors, from private individuals to risk capital, private equity funds, family offices, institutional investors and large public companies. Register to receive future editions directly in your inbox.
When the government closes, real estate observers initially focus on the effects on the residential property market. Thousands of home sales may be stopped because the state flood insurance program can no longer issue new policies; The Federal Housing Administration, the Department of Veteran Affairs and the Department of Agriculture could slow down or suspend their mortgage processing; And the IRS may not process tax certificates or income evidence documents so quickly.
But the effects on commercial properties are not quite as immediate, but much more far. A government arrest delays the government data on the economy. This leads to uncertainty on the financial markets and thus also in the handling of commercial property transactions, especially for small companies. It also affects investors' trust. Ultimately, but the most immediate, it leads to a decline in consumer demand in certain sectors.
According to a contribution by the Commercial Real Estate Alliance (CREA), the following possible consequences are possible:
- Reduced demand for commercial properties because companies and government agencies postpone or cancel leasing and development projects.
- Greater difficulties for CRE investors and developers, in view of the uncertainty and market volatility, to maintain financing and to carry out transactions.
- Fate permits for permits or other state permits required for CRE development projects.
Get Property Play directly into your inbox
CNBC Property Play With Diana Olick covers new and developing possibilities for real estate investors and is delivered to your inbox weekly.
Register here to get access today.
Economic data
The government arrest meant that the monthly employment report of the Bureau of Labor Statistics was not published for September. This concerns investors who need this type of data to make decisions about the economic situation and interest rates.
When the shutdown lasts, the Census Bureau will not publish any economic data on building expenditure, construction and building permits. All of this is of crucial importance for apartment investors.
CRE financing
Market uncertainty leads to stricter lending on the part of the lenders and possibly to higher risk premiums in shops, especially if they have to do with federal programs in any way.
“Investors in general and lenders in particular are looking for stability, and if there is political instability, this always leads to greater caution in investment decisions and lending,” said Ran Eliasaf, founder and managing partner of the Northwind Group, a real estate private and DeBt-Fonds manager. “We believe that the greatest risk of drawing is the political risk. This applies to the federal level, such as government arrest, and it applies to the local level, such as the mayoral election in New York.”
Retail, hospitality, senior citizens' apartments
If you look at certain sectors, retail and hospitality will record the fastest effects because they are completely consumer -oriented. Consumer expenditure, especially in areas with a high concentration of federal employees, could decrease because employees have been on leave or even released.
“I think that's a great risk,” said Christine Cooper, US chief economist and managing director at Costar, an information and analysis company for commercial properties. “Think of all the little retailers and cafés. You have very low profit margins, so it is more likely that you will get into trouble if you lose your customers. You will not afford it, and some closings will happen pretty quickly.”
The situation is similar in the hospitality industry, where closures of government services and national parks will have an impact on tourism. Tourism in Washington, DC has already been affected by the government by activating the National Guard and other national troops. This is just another blow to the city.
There could also be delays in care facilities and senior care facilities. These are financed together with affordable residential projects by the US Ministry of Housing and Urban Development (HUD).
“I find [for] Hud financing, the queue will be longer. Applications are not processed, ”said Eliasaf.
Federal Cre
The state commercial property market will be most affected because the sale of these properties, which is managed by the General Services Administration (GSA), is either delayed or stopped. Federal contracts, including new rental contracts and real estate maintenance contracts with tenants, must also wait.
“It will have an impact on business processing. Definitely everyone who negotiates a GSA rental contract will currently encounter a state-supported rental agreement, from VA to securing HUD financing,” said Eliasaf.
Depending on how long the shutdown lasts, the federal authorities can already supply, such as Easterly Government Properties and JBG Smith, which are heavily dependent on state rent payments.
In an SEC filing at the beginning of the year, Easterly said: “Essentially all of our income depends on the preservation of rent payments from the GSA and tenant agencies of the US government.”
construction
If past closures serve as a clue, the construction sector will also be affected. In a report by Constructconnect, an information and technology company for the construction industry, it is pointed out that the government arrest in 2013 affected state-funded infrastructure projects because the approval tests were hired by the Environmental Protection Agency. Treaty and trade specialists are dependent on these permits to mobilize teams.
And the shutdown in 2019 “invented billions of federal construction expenditure, permits for projects in connection with the Ministry of Transport and interrupted the deadlines, whereby subcontractors such as electricians, plumber and concrete specialists have been under pressure on foreseeable projects to manage workforce, materials and cash flow”, says in the Report.