**U.S. Government Shutdown Reaches Day Nine—What It Means for CRE and the Economy**
As of October 9, the U.S. government is in its ninth day of a shutdown, with Congress still at an impasse over a funding plan. The stalemate has led to furloughs of federal employees and disruptions in air travel, but the impact on commercial real estate (CRE) appears limited for now.
**No Direct CRE Impact, According to Experts**
In a recent video from Marcus & Millichap titled “Will the Federal Shutdown Impact CRE?”, Senior Vice President John Chang noted that government shutdowns seldom affect ongoing commercial real estate operations. “Financing is still available, even through Fannie Mae and Freddie Mac, and transactions are still closing,” explained Chang.
He added that one possible concern could be Department of Housing and Urban Development (HUD) payments, but delays in this area would likely only pose a problem if the shutdown lasts more than 30 days.
**Wider Economic Effects Are a Concern**
While CRE remains resilient in the short term, other areas of the economy could feel adverse effects, depending on the length of the government closure. Chang outlined the potential consequences, including:
– Downward pressure on economic growth
– Delays in the release of key economic data
– Shifts in business and investor behavior
**Historical Context**
Looking back, the last two significant government shutdowns provide some context:
– The 2018–2019 partial shutdown lasted 35 days, furloughing approximately 380,000 federal workers. The estimated economic toll was $11 billion, with around $8 billion recovered after the shutdown ended.
– The 2013 full shutdown lasted 16 days and affected about 850,000 federal employees, resulting in an estimated $20 billion loss in GDP.
The current shutdown could furlough as many as 750,000 federal employees. Chang estimates this may reduce GDP growth by 15 to 20 basis points per week, depending on the shutdown’s duration.
**Increased Risk Due to Lack of Economic Data**
One of the critical side effects of the shutdown is the stoppage in the release of key economic data, such as employment and inflation reports. The Federal Reserve typically uses such data to make informed decisions regarding interest rates.
“The highly anticipated rate cuts for October and December will likely go through,” said Chang. “But the Fed might have to make decisions without being able to consider important economic information.”
**Recession Fears Loom**
Recent data from the Bureau of Labor Statistics shows a softening labor market and more government layoffs. According to Chang, this could have a ripple effect on retail sales, home sales, health services—and ultimately on overall CRE demand.
Given these conditions, there’s concern that an extended shutdown could tip the economy into a recession. Much depends on how long the stalemate lasts and whether it undermines business and consumer confidence.
**A Silver Lining for Now**
Despite the uncertainty, there is some good news. Household balance sheets remain in relatively good shape—savings are strong, and debt-to-income ratios stay low.
“The shutdown is capturing headlines,” concluded Chang, “but the long-term impact should be minimal. At the end of the day, investors should focus on the long game.”
