CRE Braces for Fallout From Federal Shutdown

Shutdown could stall federal leasing activity and delay billions in CRE investment.

Jordan B.
October 03, 2025

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Good morning. As the government shutdown drags on, landlords with federal tenants face mounting uncertainty over rent payments, stalled leases, and delayed construction timelines—especially in markets like D.C. where Uncle Sam is the anchor tenant.

Today’s issue is brought to you by Dolfin—100% TI financing with lease-aligned payments to preserve capital.

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Federal Freeze

CRE Braces for Fallout From Federal Shutdown

Photo by Gary Cooper on Unsplash

A prolonged federal shutdown could stall leasing activity, delay rent payments, and shake confidence across D.C.’s office market.

Uncertainty for landlords: With Congress deadlocked over budget appropriations, the federal shutdown has thrown a wrench into real estate planning tied to government operations. While the General Services Administration (GSA) has pledged to keep buildings open and secure, funding limitations could slow leasing activity, delay construction timelines, and hinder property transactions involving federal tenants.

Safe for now: Experts believe federal landlords are likely to receive September rent payments on time, and possibly October’s as well, thanks to carry-over funds. But if the stalemate drags on beyond six weeks, delays could begin to hit GSA rent disbursements—an unsettling prospect for landlords with heavy federal exposure.

Construction and contracting: Fixed-price federal construction contracts are expected to proceed, but new contracts or ongoing ones requiring active oversight may stall. The Associated General Contractors of America warned that furloughs of contracting officers could cause operational hiccups, even if funding isn’t an immediate issue.

REITs raise red flags: Publicly traded REITs are sounding the alarm. Easterly Government Properties, which relies heavily on federal leases, and JBG Smith, whose top tenant is the GSA, warned in SEC filings of potential revenue hits. JBG Smith noted that prolonged shutdowns could weigh heavily on the D.C. market, which depends on federal spending.

Risk grows with time: Legal experts say GSA rent payments should hold for about six weeks with existing funding, but a longer shutdown could expose landlords to real risk. The situation adds to growing concerns across development and lending markets.

Not all analysts are concerned: Hoya Capital’s Alex Pettee expects limited impact if the shutdown is short, similar to 2018–2019. But a prolonged delay could escalate risks, particularly if SEC reviews and regulatory approvals are stalled.

➥ THE TAKEAWAY

Stability at risk: While short-term rent looks safe, a prolonged shutdown could reveal deeper cracks in federally backed real estate. For landlords and investors tied to Uncle Sam, each week without a deal adds pressure to an already fragile market.

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✍️ Editor’s Picks

Downtown Baltimore success: AirGarage transformed a mixed-use surface lot—boosting revenue by 19.5%, raising customer ratings from 2.3 to 4.25 stars, and eliminating costly gate maintenance with seamless technology and enforcement. (sponsored)
Delinquency dip: After six straight months of increases, the U.S. CMBS delinquency rate fell slightly in September to 7.23%, with improvement across all major property sectors except retail.
Flight risk: Limited partners are backing away from CRE equity, pushing sponsors toward heavier debt and private credit to get deals done.
Beyond buildings: Crowd Street is expanding beyond real estate, teaming with Nuveen and StepStone to offer private market access.
Rural boost: New rules ease investment in rural Opportunity Zones by halving improvement requirements and clarifying eligibility.
Political detour: The Trump administration’s $18B funding freeze halts key New York transit projects, sparking political outcry and economic concern.

🏘️ MULTIFAMILY

Movers & shakers: Southern cities are leading a renter migration boom, with metros like Austin and Charleston seeing over half of renters move within two years.
Built to protect: Modern multifamily buildings lead the nation in fire safety, with death rates dramatically lower than other housing types.
Wage wars: L.A. may hike construction wages to $32.35/hour on multifamily projects, drawing union support and developer opposition.
Affordable equity: MSquared closed $139M for its national mixed-income housing fund, the first step in a $1B plan to expand affordable and market-rate housing.
Exit strategy: South Florida condo owners, squeezed by new safety laws and surging fees, are pushing developers for buyouts.
Sale stalled: A federal judge froze Integra’s bid for the 304-unit Heron Pond complex after Fannie and Freddie argued the sale violated their loan rights.
Approval moment: A $2B plan to replace a longtime cold storage site with 1,589 apartments, offices, and retail heads to a key LA city planning vote.

🏭 Industrial

Small but mighty: Smaller states like Louisiana and Indiana top U.S. manufacturing per capita, while larger states like California and Florida lag behind.
Bay watch: California’s large logistics properties are struggling with falling rents and rising vacancies as tariffs, weak import growth, and a glut of sublease space weigh on demand.
Global alliance: Aware Super and Goodman Group formed a $1.3B U.S. industrial venture seeded with 2.8M SF of LA logistics assets.
No bubble: Blackstone says surging digital demand makes data centers a safe bet, dismissing bubble fears.
Cloud commitment: Meta has inked a $14.2B contract with CoreWeave to secure Nvidia-powered AI compute through 2031.
Industrial invasion: A longtime residential pocket near Experior’s trucking hub in Schaumburg is set to be replaced by logistics facilities.

🏬 RETAIL

Discount dominance: Off-price and value-focused retailers like Dollar General and T.J.Maxx are thriving as consumer spending tightens, keeping retail real estate stable.
Beachfront premium: A 7-Eleven store on Newport Beach’s Balboa Peninsula sold for $5.24M, marking one of the year’s priciest deals for the brand.
Lonestar strip: Houston investors bought a 99%-leased shopping center near Dallas’ RedBird Mall for $11.7M, betting on rising rents and retail stability in a tight market.

🏢 OFFICE

Madison move: Sotheby’s sold its UES headquarters to Weill Cornell for $510M, funding a move to Madison Avenue and reducing debt.
Default warning: Office Properties Income Trust will be delisted from Nasdaq after missing $30M in debt payments.
Back to business: Manhattan office leasing hit 31.7M SF through Q3, putting 2025 on pace to match or beat pre-pandemic highs from 2019.
Capitol comeback: D.C.’s office market is showing signs of recovery, led by trophy assets, legal sector leasing, and ongoing conversions.
State slimdown: California may relocate its utilities commission from a costly SF office, with the Pat Brown Building eyed for sale or housing conversion.
Tower turnaround: Manhattan is seeing a record 4.1M SF of office-to-residential conversions in 2025 as outdated towers give way to housing.

🏨 HOSPITALITY

U.S. debut: Kerzner International, 13th Floor Investments, and Forse Holdings are teaming up to launch the first U.S. Siro hotel.
Back to 2019: Downtown Chicago hotels booked 3.6M room nights this summer, surpassing pre-pandemic highs and generating a record $949M in revenue.