Federal closures create ripple effects across commercial real estate, with Washington’s hospitality sector bearing the brunt
The federal government shutdown may seem like a distant Washington problem, but for the nation’s commercial real estate industry, it represents a real and measurable threat—particularly for the hotel industry.
According to Wells Fargo Economics, while government shutdowns typically don’t inflict lasting damage on overall economic growth, they create distinct pressure points across the commercial real estate landscape. “Past shutdowns show us that closures might shave a few tenths off GDP growth, and then once the government reopens, growth typically rebounds by an equal amount,” the firm notes in its latest Real Estate Spotlight report.
But aggregate numbers mask localized pain. The Washington DC region, home to roughly 20 percent of all federal government employees, has experienced noticeable declines in hotel occupancy during previous shutdowns—a pattern that offers a window into how dependent certain markets have become on steady government operations.
The mechanics are straightforward: when federal workers are furloughed, business travel evaporates. When agencies close, tourist attractions from the Smithsonian museums to national monuments shutter their doors, taking visitor spending with them. The result is a double blow to hospitality operators who depend on both government-related business travel and tourism dollars.
Historical data bears this out. During the 1995-96 shutdown, hotel occupancy in DC dipped noticeably, as it did again during the 2013 closure and the lengthy 2018-19 shutdown—all marked periods clearly visible in seasonally adjusted occupancy data. As of September, DC hotel occupancy stood at 65.6 percent, already facing headwinds before the current closure.
Wells Fargo Economics emphasizes that “hotel occupancy usually recovers as furloughed employees resume travel and tourist attractions reopen,” suggesting the damage remains temporary for most operators. Yet the firm warns that “the declines serve as an important reminder that federal government spending as well as visitor spending associated with tourism to national parks, museums and other federal sites are key drivers for many local economies.”
Beyond hospitality, Wells Fargo identifies other potential commercial real estate impacts, ranging from wider credit spreads to spending reductions in markets heavily dependent on federal presence. “A prolonged shutdown could temporarily pressure CRE segments reliant on such factors,” the report cautions.
The stark plunge in occupancy visible around 2020 (COVID-19 pandemic)—when rates briefly dropped to around 18 percent—serves as a reminder that external shocks can devastate hospitality fundamentals far more severely than government closures. Still, for hotel operators in federal-dependent markets, even temporary shutdowns represent an unwelcome source of volatility in an already challenging operating environment.
As Washington remains gridlocked, the commercial real estate industry watches nervously, knowing that each day of closure translates to empty hotel rooms, shuttered conference centers, and dimmed prospects for segments that have built their business models around the steady rhythms of government operations.
