The longest government shutdown in American history ended last week when President Trump signed a bill to fund the government through the end of January. While the (possibly temporary) reopening of the government brought a sigh of relief for many Americans, “the economy isn’t the one we switched off in October,” said Bisnow Editor-in-Chief Mark F. Bonner on his First Draft webinar, a weekly series featuring live conversations about the critical stories impacting CRE.
The shutdown caused considerable damage to the U.S. economy. National Economic Council Director Kevin Hassett told reporters last week that the Council of Economic Advisers estimated the shutdown cost the economy about $15 billion per week. He estimated that translated to a subtraction of roughly 1.0 to 1.5 percentage points from annualized gross domestic product growth in the fourth quarter, although some have suggested it may balloon to 2%. The Congressional Budget Office estimated that a six-week shutdown would cost the economy $11 billion in permanent losses.
The shutdown had a significant impact on the commercial real estate industry, particularly the hospitality and retail sectors. It’s estimated that since October 1, $6 billion in travel spending and over 6.7 million hotel room nights have been lost. The American Hotel & Lodging Association (AHLA) and industry analysts calculated that the shutdown was costing the hotel sector about $31 million in lost business per day, resulting in a total estimated impact of more than $1.2 billion by early November as thousands of rooms remained unbooked nationwide.
The loss was primarily due to reduced government travel, event cancellations, and a sharply lower demand from both business and leisure travelers, who were concerned about disrupted flights, delays, and overall uncertainty. The situation significantly impacted hotels in major markets, airport corridors, and cities that rely on conventions or group travel, leading to widespread booking cancellations and empty rooms on a scale rarely seen outside of major economic crises.
Retail was also hit hard. There were still 42 million Americans waiting for SNAP benefits, a substantial amount of which helps sustain grocery-anchored retail centers. 1.4 million federal workers (670,000 furloughed, 730,000 others working without pay) are still reeling from the loss of paychecks as we head into the holidays.
The shutdown also slowed multifamily housing development by stalling federal financing, freezing regulatory approvals, and disrupting essential programs. The Federal Housing Administration (FHA) ceased accepting new multifamily loan applications and processed only those with firm commitments before the shutdown. New affordable housing developments dependent on HUD, FHA insurance, project-based vouchers, or low-income housing tax credits (LIHTC) saw funding frozen or threatened.
In an article written two weeks into the shutdown, Aquiles Suarez, Senior Vice President of Governmental Affairs at NAIOP, detailed the operational and financial impacts the shutdown would have on CRE. Below is how the impacts on CRE that Suarez noted were realized:
Permitting Delays: Required Environmental Protection Agency (EPA) reviews of environmental impact statements for major projects, or U.S. Army Corps of Engineers wetlands permitting reviews, were suspended or delayed, leading to project delays and increased costs.
Internal Revenue Service (IRS) Reviews: Multifamily housing projects with an affordable housing component or real estate projects in opportunity zones faced delays and possibly funding shortfalls due to the failure of the IRS to process forms or issue required revenue rulings. Projects using Low-Income Housing Tax Credits (LIHTCs) or Historic Tax Credits could be affected, leading to problems with investors and lenders.
Flood Insurance Availability: Lack of funding for the National Flood Insurance Program resulted in an inability to renew or issue policies, holding up property transactions in flood-risk zones.
Lease Payment Delays: General Services Administration (GSA) rental payments to landlords leasing commercial property to federal government agencies were delayed or withheld, creating financial hardship for these landlords. With contracting officers having been furloughed, renewed GSA leasing activity was also delayed.
“So yes, technically the shutdown is over, but emotionally, politically, economically…,” said Bonner, his voice trailing. “The system designed to stabilize the country just reminded everyone how quickly it can destabilize it. And don’t look now, but the sabers are already rattling about another shutdown in January.”
CRE Forecasting Disrupted
The shutdown halted the release of critical federal economic data (e.g., job reports, construction data, inflation figures, import and export data, etc.), creating an information vacuum for investors and analysts. This lack of timely data hinders accurate forecasting of market conditions and economic activity, leading to increased caution and operational conservatism among investors and other CRE stakeholders.
The White House said last week that the October jobs and consumer price indexes will “likely never” be released. Also, the fourth-quarter gross domestic product report is not scheduled for release until early next year. The next full jobs update isn’t expected until early January.
Rate Cut in Jeopardy?
That lack of financial data has also decreased the likelihood of a rate cut in December, according to multiple reports. A November 13 CNBC article reported, “Whereas traders as recently as a few days ago were pricing in at least a 2-to-1 probability of a quarter percentage point cut, that’s now flipped to a coin toss, according to futures markets readings tabulated by the CME Group in its FedWatch tool.
‘These developments chip away at our confidence the Fed will cut in [December] without giving us any more confidence a skip to [January] is a better bet,’ Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a note. ‘This leaves us still seeing a [December] cut more likely than not but only 55-60 per cent.’”
The impact of the shutdown was not a fatal blow to the economy. However, with a weakening labor market, an inconsistent tariff policy, and fears of a potential recession, market uncertainty is even greater than before.
In this uncertain investment and leasing environment, it is more important than ever to enlist the services of a trusted advisor. Contact one of Voit Real Estate Services’ trusted commercial real estate advisors to learn more about how we can assist you with your commercial real estate needs.