How the Government Shutdown Impacts Commercial Buildings

With the federal shutdown into its second week, specific real estate sectors will feel a far-reaching impact, CNBC reported.

When the government shuts down, home sales and apartment rentals are delayed due to the federal flood insurance program no longer being able to issue new policies; IRS might not process tax transcripts or income verification documents as quickly; and the Federal Housing Administration, Department of Veteran Affairs, and Department of Agriculture might slow or suspend their mortgage processing.

However, the impact to commercial real estate (CRE) is widespread, although, not quite as immediate. A government shutdown delays government data on the economy, which, in turn, causes financial uncertainty and impacts investor confidence, particularly in small businesses.

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.
• Reduced consumer spending, which can hurt retail and other CRE sectors.

Additionally, CREA said a shutdown of the General Services Administration could delay or cancel government leases, negatively impacting the office and retail real estate sectors. A shutdown of the Small Business Administration could make it more difficult for small businesses to obtain loans, dampening demand for CRE. 

Still, the impact of this year’s shutdown on real estate depends on its length. A more prolonged shutdown could see the economy shrink in the fourth quarter.