Ridership down in 2025 despite return-to-office policies, TTC says

The Toronto Transit Commission's 2026 operating budget document shows fall 2025 ridership declined even as employers implemented return-to-office policies, with usage remaining below pre-pandemic levels. The persistent shortfall creates ongoing revenue pressure for the TTC and complicates municipal budgeting and service-restoration assumptions.

Analysis

Market structure: Persistent downbeat TTC ridership despite return-to-office increases winners: suburban retail/industrial landlords and last-mile logistics (expect relative rent growth +3–6% vs CBD over 12 months). Losers: downtown office landlords/parking operators and transit-capex vendors where farebox revenue shortfalls force municipal subsidies or procurement delays. Expect pricing power to shift modestly toward logistics REITs and away from prime-office REITs over the next 3–12 months.

Risk assessment: Tail risks include a Toronto/Province fiscal squeeze that triggers a city bond downgrade (50–150bp spread widening) or delayed transit capital orders (multiyear). Near-term (days–weeks) volatility will track budget announcements and ridership data; medium-term (3–12 months) depends on corporate mandate enforcement and gas price swings; long-term (1–3 years) is structural remote-work adoption. Hidden dependency: ridership correlates with downtown retail footfall and municipal tax revenue, creating second-order impacts on municipal credit and redevelopment economics.

Trade implications: Direct plays — short downtown-office-focused REITs (e.g., ALLIED PROPERTIES REIT AP.UN.TO) and long suburban/industrial REITs (e.g., RIOCAN REIT REI.UN.TO) as a pair; hedge with 3–6 month options to limit tail. Fixed income — underweight Toronto/municipal credits and use 2–5yr provincial paper; consider buying municipal credit protection or widening‑spread trades if subsidy requests exceed C$200M. Monitor budget releases as immediate catalysts.

Contrarian angles: Consensus assumes steady remote work; miss is conversion risk—owners can repurpose office to residential/industrial over 2–5 years, limiting downside. Reaction may be overdone in short term; if provincial/federal support cushions budgets (within 30–90 days), downtown landlords could snap back 10–20%. Trade sizing should therefore be staged with conditional add-ins tied to subsidy/downgrade triggers.

Key Decisions for Investors

• Establish a 2–3% portfolio short position in Allied Properties REIT (AP.UN.TO) using a 3-month 5–10% out-of-the-money put spread to cap cost; increase to 5% if City of Toronto subsidy requests exceed C$200M or if similar ridership declines repeat in next two monthly prints.
• Initiate a 2–3% long position in RioCan REIT (REI.UN.TO) or a Canadian industrial REIT (e.g., CT REIT alternatives) to capture expected 3–6% relative rent growth over 12 months versus downtown office exposure, pair this long with the AP.UN short for market-neutral exposure to broader REIT beta.
• Reduce direct exposure to Toronto/municipal bond funds by 30% of current allocation; rotate into 2–5yr Ontario provincial bonds or high-quality investment-grade corporates to shorten municipal duration and avoid a potential 50–150bp municipal spread widening over 3–12 months.
• Buy 3–6 month protection (credit default swap or widen-spread ETF/instrument) equivalent to 1–2% portfolio risk on a Toronto municipal credit sleeve if the City signals a >C$150–200M budget gap or requests emergency provincial/federal aid within 60 days.
• Defer establishing large long positions in downtown office REITs for 3 months; reassess after two consecutive monthly ridership reports or any provincial/federal transit funding announcement — if ridership rebounds >10% month-over-month, consider a 1–2% tactical long with tight stops.