These States Are Bearing the Brunt of the Government Shutdown
Now entering its third week, the 2025 federal government shutdown has deepened its economic reach, rippling far beyond Capitol Hill and pushing uncertainty into the country’s real estate markets. According to a new WalletHub analysis, the District of Columbia, Hawaii, and New Mexico are feeling the sharpest pain — and much of it is tied to the intersection of federal employment, contracting, and property-related sectors that power local economies.
The study ranked all 50 states and the District of Columbia using five metrics: each region’s share of federal jobs, federal contract dollars per capita, percentage of families relying on SNAP assistance, the share of real estate in gross state product, and access to national parks. These criteria illustrate how intertwined federal activity is with local markets, from government office leases to construction and logistics demand.
Washington, D.C., ranked first as the most affected area, due to the outsized role of the federal government in its economy. As the seat of federal operations, D.C. leads in federal contract dollars per capita and federal employment concentration. “The District’s real estate market is particularly vulnerable in shutdowns because so many leasing decisions, procurement contracts, and agency relocations are financed or approved through federal processes that are now frozen,” said WalletHub analyst Chip Lupo. The shutdown has already delayed renewals in several government-leased buildings, according to brokers active in the capital.
Hawaii’s ranking at number two reflects the state’s unusually large share of federal jobs—about 5.6% of total employment—and its reliance on federal defense spending. Federal real estate, especially military installations and related operations, supports significant portions of Hawaii’s office, industrial, and retail markets. Meanwhile, tourism, a pillar of its economy, has been hit on another front as national park sites scale back operations amid staff furloughs.
New Mexico, third on WalletHub’s list, faces a compounding effect. It has the highest share of families receiving SNAP assistance—more than 20%—and significant federal contracting through research and energy labs. The shutdown’s impact on payment flows to federal contractors could slow new construction and lab-adjacent leasing in Albuquerque and Los Alamos. The report noted that SNAP, while still operational for now, could face funding shortfalls if the impasse lasts much longer.
Alaska and Maryland round out the top five, each with heavy government exposure in their economic bases. Alaska’s ranking stems from the federal government’s role in its energy and environmental sectors, along with the shutdown of park services that typically boost rural economies. Maryland and Virginia, ranked fifth and sixth respectively, are absorbing the economic strain of furloughed federal workers and suspended procurement activity — both critical drivers of the regional commercial office market. Virginia’s Northern Virginia submarkets are particularly exposed due to their deep cluster of defense and intelligence contractors.
West Virginia, Alabama, Oklahoma, and Arizona also placed within the top ten, reflecting concentrations of federal facilities and workforce. In Alabama and Oklahoma, where military bases and defense contracting are key tenants of local property markets, rent-payment delays from government lessees and uncertainty around new project funding have started to show ripple effects. In Arizona, the shutdown’s closure of national parks such as Grand Canyon National Park has slowed visitor-dependent spending and left tourism-oriented commercial corridors strained.
On the other end of the ranking, Minnesota, Iowa, and Indiana emerged as the least affected, largely because of their smaller federal employment bases and limited reliance on government leasing or contracting. Wisconsin, for example, recorded the lowest share of federal jobs in the country at just over 1%, compared with the national average of about 2.6%.
Nationwide, WalletHub estimated the shutdown’s toll on the economy at roughly $400 million per day, with nearly 900,000 federal workers furloughed and another 700,000 working without pay. The effect on real estate has been immediate: mortgage processing delays due to limited staffing at the IRS, FHA, and VA, halted USDA loan programs, and postponed property transactions that depend on federal verification. This combination of stalled liquidity and thinner tenant confidence could create near-term softness in leasing and investment activity if the budget stalemate persists.
Source: GlobeSt/ALM