Chicago Transit Faces 'Full-Scale Crisis' That Could Put CRE Recovery At Risk

The doors are closing on the opportunity for the Illinois Legislature to find hundreds of millions in funding for the Chicago area’s mass transit system before it goes off the rails. 

The table is set for a critical legislative session in Springfield over the next two weeks. Mass layoffs and 40% service cuts on both the CTA and Metra loom in the coming years, with large immediate cuts pushed through one-time measures. The General Assembly convenes for its annual fall veto session for three days this week, followed by another session Oct. 28-30.

Proximity to public transportation boosts property values, drives rents and increases accessibility across the city. A crippled transit system could derail CRE’s efforts to recover in the wake of the pandemic and stymie future development along a key city artery. 

“The stakes are: Does Chicago become once again a healthy city with a vibrant downtown, or do we continue this very frightening circumstance of incredibly high vacancy rates downtown and the huge loss of value that has happened to downtown real estate over the last four years?” said Rick Harnish, executive director of the High Speed Rail Alliance.

The Regional Transportation Authority is the financial and oversight body for the three major transit agencies in northeast Illinois: the Chicago Transit Authority, Metra and Pace.

A budget task force made up of finance and planning staff from the RTA and the three agencies it oversees projects a mass transit budget gap of about $200M in 2026 that will increase to almost $790M in 2027 and nearly $890M in 2028 without new state funding.

The RTA initially projected a $771M deficit next year but reduced that gap by roughly $570M by utilizing higher-than-expected sales tax revenues, reserve funding, reallocations from capital to operating budgets, and expected new revenue from a planned 10% fare increase in February. 

“If lawmakers continue to delay action on funding and reform, riders will begin to feel the pain through service cuts and fare increases in 2026, with worsening impacts when the full cliff hits in 2027,” RTA Chairman Kirk Dillard said in a statement earlier this month. “In 2027, all federal relief funds will have been spent, and we will have a full-scale crisis.”

The CTA operates the nation’s second-largest public transportation system. On an average weekday, riders take 953,787 trips on the CTA, according to the agency. It operates 127 bus routes and serves more than 10,000 bus stops, as well as trains that stop at 146 stations. 

Metra ridership increased 12% in the third quarter compared to Q3 2024, providing 3.6 million passenger trips in July alone, according to Michael Edwards, president and CEO of the Chicago Loop Alliance. Average weekday CTA ridership in Q2 was 79% of ridership during the same period in 2019. 

Ridership has increased in part because a larger contingent of employers is requiring workers to come into the office for the full week, Edwards said.

The real impact of potential cuts would depend on what the route-by-route service reduction entails, specifics of which are sparse, said Joseph Schwieterman, director of the Sustainable Urban Development program at DePaul University. 

But there is “tremendous” pressure to expand Chicago’s housing supply, and transit is a key part of the equation. 

“The transit crisis threatens to lower the urban quality of living in ways that could chill the market,” Schwieterman said. 

Loop The Loop

As the Loop, long an economic engine of Chicago, battles to regain vibrancy with the lingering impacts of the pandemic, a couple of its key developments may depend on functioning, reliable transit to succeed.

The buzziest project in the central business district is Prime | Capri Interests’ redevelopment of the James R. Thompson Center into Google's new Chicago headquarters. The development, which many pin hopes on as an economic anchor for an area struggling with office and retail vacancy, began with Google’s acquisition of the property in 2022, with a major selling point being its proximity to transit.

“The Thompson Center will provide employees with unparalleled public transit access as the only building in the city where six L train lines converge, easily connecting Chicago’s South, West and North sides,” Google said in a statement at the time. 

LaSalle Street Reimagined, the city’s ambitious bid to aid developers planning to convert six struggling office buildings into apartments offering more than 1,000 housing units, is well underway. One of the city’s core principles for the area is rethinking the roadway and prioritizing transit access. 

The Loop’s retail has taken a beating since the pandemic. It improved marginally in 2024, as the vacancy rate decreased to 29.8%, down from 30.1% in 2023, according to data from Stone Real Estate. Since March 2020, Loop retailers have vacated 222 storefronts totaling 660K SF.

The Central Loop submarket posted negative net quarterly absorption of about 153K SF in Q3, according to a Colliers office report. Overall vacancy decreased from 26.6% to 26% despite negative absorption, due to the Class-B 30 N. Lasalle St. getting removed from the office inventory, as it is slated for residential conversion.

“We think that this is an existential issue for the Loop,” Edwards said of the transit budget crunch. “The Loop is here largely because of transit. If 40% of the transit goes away, it's another body blow to the Loop.”

Tale Of 3 Cities

Philadelphia and New York offer cautionary tales for Chicago’s looming transit woes. 

Philly’s transit system, the Southeastern Pennsylvania Transportation Authority, or SEPTA, faced a $213M budget deficit at the end of August, nearly identical to Chicago’s transit shortfall for 2026. In response, the agency briefly implemented sweeping service cuts and raised fares by 21.5%. 

A SEPTA-contracted economic impact study from April found that residential property values could fall by $19.9B if the worst-case budget scenario came to pass in 2026 — $12.2B in the suburbs and $7.7B in Philadelphia proper. The study also warned that Philly’s nascent return-to-office movement could take a major hit.

“These cuts to SEPTA’s service — which would hurt our economy and make it harder for hundreds of thousands of Pennsylvanians to get to work, school, and wherever else they need to go — are completely avoidable,” Pennsylvania Gov. Josh Shapiro said at the time.

SEPTA’s planned service cuts were only halted after a lawsuit led a judge to rule that the agency had to restore its service. SEPTA ultimately drew from its state capital assistance funding over the next two years to comply with the judge’s order and fully bring back operations. The agency is facing legal challenges over its fare increase. 

New York’s Metropolitan Transportation Authority is trying a multitude of approaches to piece together a solution to fill a massive funding gap. Starting in 2025, the agency forecast a $3B recurring budget shortfall, which it aims to tackle in part with its Zoning for Accessibility program.

The MTA is looking to partner with well-capitalized office and residential developers to help bridge its multibillion-dollar budget gap. The program, which started in 2021, offers floor area bonuses in exchange for much-needed subway entrance and circulation upgrades. Developers can opt in to working with the MTA through a simplified program that extends to high-density districts outside of Midtown Manhattan.

“If a developer comes in and makes an improvement, that is money saved that we could put elsewhere in another station or anywhere else in the system,” Munsun Park, the senior director of zoning and development for the MTA’s transit-oriented development group, told Bisnow earlier this month. 

In January, New York also introduced the country’s first congestion pricing program, placing a toll on drivers entering Manhattan south of 60th Street. Tolls are expected to collect $500M this year. 

“That was their solution,” Edwards said. “It may not be ours, but that's their solution to at least part of their problem.”

Out Of Sight, Out Of Mind

But not everyone in Chicago CRE is preemptively worried about the impact of the transit crunch.  

Jeff Lindenmeyer, principal of office tenant representation at Avison Young, said employers and tenants he works with haven’t expressed any concern about the mass transit situation yet. 

The expectation is that when the time comes, lawmakers will find a solution to the transit shortfall, said Damla Gerhart, principal and central regional managing director at Avison Young. Since the worst of the impacts are still a couple of years away, she said clients anticipate something will come together as the gap looms. 

“It's been a bit of let's cross that bridge when we get there,” she said. “If our employees need to figure out how they get to work because CTA is not operating, we'll figure that out at the time.” 

Schweiterman said that because CRE has been through “a number of doomsdays before” that have been handled, there is an assumption this will be taken care of the same way.

“There's a misplaced confidence that things will largely stay the same,” Schwieterman said. “There's little or no panic out there in the real estate community about this. I think once we know precisely when we will reach the cliff and the risk of falling off, attitudes may change.”

But an affordable, reliable and safe transit system is critical infrastructure for a world-class city, Trina Sandschafer, vice president and managing director at Project Management Advisors, said in an email. Proximity to transit is a key decision-maker in site selection for the businesses that drive Chicago’s economy, and workers rely on it to get to their jobs, she said. 

New development often begins in transit-oriented districts, Sandschafer said. With fewer transit access points, new development would likely cluster into areas served by transit while those without transit see less investment.

Transit upgrades like the Green Line Morgan Street station modernization project, the new Green Line Damen station and the ongoing Red Line modernization project are just a few of the examples of the positive impact of investment in the city’s transit system, Sandschafer said.

“The proposed cuts to the CTA would be detrimental to the movement of our city,” Sandschafer said in a statement. “From a real estate perspective, existing buildings that lose their access to transit would become less desirable — for workers, residents, and guests.” 

Addressing the shortfall is a priority for lawmakers during the three-day session, according to ABC 7, but the decision could be pushed to the regular legislative session in the spring. The House must vote to accept or amend a plan passed by the Senate in May.

If the state legislature doesn’t act this fall, there will need to be layoffs in the near future. If the body waits till next year, layoffs will have already happened, and that is when riders will start to see real problems, Harnish said. 

Then people who have been laid off may have gone and gotten other jobs, with the city’s transit agencies losing their talent bases. 

“We need to get this done,” Harnish said. “This is a huge decision for the future of the city.”