At Nighthawk Brewery & Pizza near the Pentagon outside Washington, D.C., event bookings are getting canceled. In downtown Chicago, business has dropped off at the Watch Depot jewelry store near three federal office buildings. And in Los Angeles, a struggling mall next door to a major government building downtown isn’t attracting passersby.
Eight days after the first federal government shutdown since 2019 began, businesses across the country near federal offices — particularly around the nation’s capital — said they are starting to feel the fallout from the lack of workers showing up. Some nearby retailers that rely on foot traffic to generate cash flow for lease payments are growing concerned about effects of extended closings.
“We get a lot of business from the Pentagon, so we had [events] that were booked that got canceled,” said Joey Shuttleworth, a manager at Nighthawk in Arlington, Virginia. “Bad thing is a lot of people are still going to work and they’re just not getting paid or they’re not sure when they’re going to get paid. The purse strings are tightened because the uncertainty is there. Getting pizza and a beer is not as important as paying the electric bill.”
Federal funds to keep agencies operating lapsed at the end of last month, and members of Congress are still without an agreement over any resolution. Commercial real estate professionals have their eye on how long the pause in government operations could stretch, and they have noted that the nation’s capital could receive one of the biggest blows as a center of federal government employees.
“Markets with strong government presence bear the brunt: The Washington, D.C., capital region is usually the hardest hit, including Maryland and Virginia,” Cushman & Wakefield’s Rebecca Rockey wrote in an online insight. Since the enactment of the U.S. government’s current budget and appropriations process in 1976, there have been about 20 funding lapses, of which four have resulted in official government shutdowns lasting more than one business day, she wrote.
This time, furloughs of government employees, combined with the risk of permanent federal workforce cuts, have caused concern about ripple effects throughout Washington, D.C. While there are disruptions, some businesses point out that customers are still coming in and don’t expect that to change significantly unless the shutdown goes for an extended period.
Hurting restaurants hit again
The district’s chief financial officer said in a letter on the city’s latest revenue estimates that “a prolonged federal government shutdown ... could place significant strain on the economy.”
Eateries in Washington might face the bulk of challenges.
“The federal shutdown brings real uncertainty to workers, families, and businesses across our region. Restaurants — already navigating thin margins — are directly impacted,” Shawn Townsend, president of the Restaurant Association of Metropolitan Washington, or RAMW, told CoStar News via email.
Survey data from the regional trade group found declines in the restaurant industry in August, with 71% of district-area restaurants reporting sales drops and 74% seeing fewer diners compared with last year. The association helped launched an initiative upon the start of the shutdown to encourage district residents and visitors to dine out in response to existing “steep declines in sales and foot traffic.”
Other metropolitan Washington locations have specials for federal workers. Italian restaurant Osteria Morini said on social media it was offering federal employees affected by the shutdown $15 pastas as its “small way of saying: we see you, and we’re here for you.” Washington-based coffee chain Compass Coffee shared a similar message online, saying federal workers can nab a free pastry with their order during the “shutdown blues.” A supervisor at a Compass in downtown said more customers have come in since the pastry giveaway began.
City leaders in the nation’s capital remain adamant that the district is open for business, even as some museums and tourist sites have been temporarily closed.
“Hoteliers have shared that it’s hard to fully gauge the impact of the government shutdown,” CoStar’s Didio Pequeno, a director of hospitality market analytics, told CoStar News. “That said, there has been some impact on group demand, especially to hotels located in the Northern Virginia submarkets closest to D.C.”
A shutdown “has real consequences for travel demand, booking pace, and hotel operations,” Stephen Haase with Bethesda, Maryland-based institutional investment services firm Greysteel wrote on LinkedIn. The U.S. Travel Association sent a letter to congressional leaders at the end of last month saying the U.S. travel economy would lose $1 billion every week during a shutdown and that communities with federally owned attractions — such as the district — would bear the brunt of canceled trips.
For now, some upcoming events meant to draw in crowds to the city are slated to still be held. The Association of the U.S. Army said it would hold its annual meeting and exposition later this month, even if the government remains shut.
Fewer watch buyers
The effects are hitting beyond the nation's capital. Miguel Angel Garcia, owner of downtown Chicago shop Watch Depot, said his business is suffering. His store is a short walk from the John C. Kluczynski Federal Building that houses the Department of Labor, Drug Enforcement Administration and Internal Revenue Service, as well as the Ralph H. Metcalfe Federal Building and Everett M. Dirksen U.S. Courthouse.
“The last two weeks, everything slowed down even more,” he told CoStar News. “When everything was being talked about with the shutdown, people are even more scared to go outside and spend money on jewelry, gold, watches, especially watches.”
Foot traffic in the area has pulled back drastically, said Jeff Fleischauer, co-owner of JC Jewelers, located inside the Monadnock at 53 West Jackson Blvd. The Monadnock is also near the Metcalfe building and Dirksen Courthouse.
“It has been a little quieter the last week without them here. You can see there’s no one walking there,” referencing the Monadnock’s hallways, part of the structure completed in 1893 as the world’s largest office building.
In Los Angeles, the Edward R. Roybal Federal Building on Temple Street houses about 4,500 workers, while another 1,000 employees enter daily at the Federal Building next door. On the street outside, foot traffic is curtailed.
At the Los Angeles Mall, a 1970s complex between the courthouses, an hour passed with few pedestrians on Los Angeles Street entering.
That comes as a rise in empty storefronts has already drained street-level energy from a district that once relied on steady courthouse and office traffic to support restaurants, cafés and neighborhood shops.
Federal closings are expected to hit hard next week as the reserves run out, accelerating the hollowing out of Los Angeles’ civic and commercial core.
Even with the concern felt by businesses coast to coast, some commercial real estate professionals suggest that unless the shutdown is sustained, the fallout on the wider commercial real estate industry could be limited. “The near-term impact should be, I’d say, somewhat muted, because CRE is slower moving and most investors and occupiers will see through this as temporary noise,” Cushman & Wakefield’s Chief Economist Kevin Thorpe said in a video shared on LinkedIn. “But unless it drags on for a prolonged period of time, the broader economy and CRE should be able to weather the storm.”
A report from Marcus & Millichap concurred that “the longer the closure lasts, the greater the potential impact.”