Chicago Corner Stores Revisited
Could a zoning tweak bring back residential block businesses?
A couple of months ago, I wrote about the demise of the residential block business in Chicago. This post gives a brief overview of the history of zoning in reference to mid-block businesses and why they’re so rare today. What I didn’t talk much about was how theoretically simple it would be to allow for these types of establishments to return.
Lincoln Tavern on Wabansia St Closed in 2013. Storefront has been vacant since and Building is currently zoned R4
The B2 code is a relatively new zoning designation. It appears prominently in the 2004 Zoning Ordinance rewrite and was intended to combat the throngs of storefront vacancies on semi-major streets, a result of decades of population density loss and the growing consumer preference for big box retailers over mom and pop specialty stores.
The code permits living space in these first-floor former storefronts as of right, a potential game changer for owners struggling for years to find commercial tenants in the era of Amazon. Some call this the “artist designation,” as many old Chicago storefronts, with their high ceilings, lack of mid-room bearing walls, and huge windows, lend themselves nicely to live/work or creative uses.
17-3-0103-A “The purpose of the B2, Neighborhood Mixed-Use district is the same as the B1 district, but with the added objective of providing a greater range of development options for those streets where the market demand for retail and service uses is relatively low. By allowing ground-floor residential uses by-right, the B2 district is intended to help stimulate development along under-developed streets.”
B2 Designation as defined by Chicago 2004 Zoning Ordinance
The ordinance itself outlines “market demand” as a key driver for the flexibility of this code compared to other zoning designations. There is no doubt that the intent behind B2 at the time was to make parcels more attractive to builders and owners by making the first floor habitable and thus more easily rentable. This would be a net positive for the community by cutting back on now austere, once bustling commercial corridors and filling them in with housing. What I wonder is if there’s a world where having the flexibility of potential commercial use on the first floor of former mixed-use, now residential-zoned buildings off of major streets could be an enticement for owners and a net positive for the neighborhood?
New Chicago Stores Have a Size Problem
If there’s one trend I’ve written about to death, it’s the changing locational wants of Chicago’s home buyer over the last decade. Even before Covid, there was a growing stagnation of residential median sales price in and around downtown Chicago, while each year prices and demand grew for second and third ring neighborhoods with their low-rise, walk-up character and tree-lined streets.
I live in Bucktown, a perfect example of this, and one of the highest performing residential markets in Chicago in the last 10 years. Like many second-ring from downtown neighborhoods, most of the existing housing stock dates from around the turn of the century, decades before Chicago’s first zoning ordinance in 1923 forbade future uses of mid-block or residential corner businesses. While dozens have been converted or torn down, a handful of these old mixed-use buildings have remarkably retained active businesses through both the 1957 zoning fortification and the 1970s-90s urban flight era.
Today, what side street businesses still remain are seen as a blessing to the neighborhood, and I believe a major contributor to the immense demand to live here. Something about dining at Club Lucky or Antico, drinking at the Charleston, and shopping at Olivia’s Market lets people relive some of the ooh and ahhing they did on their European or even New York vacation. It’s not just the aesthetic TikTok fodder shoppy-shops that make an impact. Corner stores like Bucktown Market are vital. Who wants to have to drive or walk half a mile along the highway or a crazy 4-lane arterial street to a supermarket every time they need a household essential? Aren’t we ranked as having the worst traffic congestion in the country?
In neighborhoods like Bucktown, the problem isn’t the lack of commercial space, its that the active commercial storefronts themselves suck ass. Bucktown, like so many gentrifying areas in the early 2000s, saw waves of condo development. Developers liked building on major streets because the huge floor area ratios(FAR) zoning codes allotted on major streets allowed them to pack a parcel with a higher unit count and thus a higher net yield when the project sells out. The problem for the builders was what to do with the pesky requirement of first-floor retail space. Three lot developments (which are common here) would suddenly have 7500 square feet of retail space at the base of the building. To make the residential units above more marketable, builders commonly forbade certain uses of the commercial space, like restaurants, bars, cafes, pet stores, and stores that include liquor sales in the HOA bylaws. How many and what kind of businesses outside of this scope in a second-ring neighborhood can actually fill a 7500 SF space profitably? It is common for these types of storefronts to sit vacant for years between tenants.
Conversely, turn-of-the-century residential mixed-use buildings often feature storefronts as small as 800 SF. Turn-of-the-century businesses were smaller and more specialized than the big box retailers we’re comfortable with today.
Major street retail in Bucktown conservatively tends to rent around $35/SF/Y. If we applied this metric to an 800 SF residential corner storefront, we’d get a monthly rent pre-utility/tax/insurance of $2333/month. This is about $350 a month more than the median 800 SF 1-bed rent price in Bucktown from 1/1/2025-6/1/2025, according to MLS data.
This could be a boon to both the building owner and the commercial tenant. Let’s break down how:
For the Tenant:
A cafe wants to open in an 800 SF residential storefront. Cafes are allowed in the ground floor of a building by right in the B2 zoning designation.
Bucktown has a population density of about 21,000 per square mile. According to a report by the National Coffee Association in 2022, 66% of Americans aged 18 and over drink coffee daily. About 85% of Bucktown’s population is over 18.
Assuming most customers live within a square mile of the business, that gives us 11,220 potential customers.
Let’s assume the average cost of a coffee is $3.50, and that’s all one customer spends per visit.
Even if 5% of those 11,220 potential customers in that square mile visited that cafe a day and only bought a $3.50 coffee, the gross revenue would be $1963 per day. Now I know nothing about running a small coffee shop or cafe, but that daily revenue margin against at $2400 base rent seems pretty damn good.
For The Building Owner
The base rent price is higher than that of a mid-quality residential unit of the same footage.
Commercial leases are usually drawn as triple net agreements in Chicago, meaning that the utilities, trash, share of taxes, and insurance would be paid on top of the base rent amount, bolstering the net return for the owner as commercial use. These leases are also generally much longer than residential leases. 10 years with baked-in annual increases in base rent is commonplace.
Less maintenance and upkeep. Our company (which has about 14,000 residential rental units under management) has about a 40% annual rental turnover rate. Fair to assume that in a 10-year timeline, a residential unit will turn over several times at least. Residential leasing fees usually equate to one month’s rent, and deep cleaning, painting, and repairs can easily cost over $1000 each cycle.
The B2 zoning the hypothetical building carries allows the unit owner to hedge: both living space and commercial space are allowed on the first floor. If retail demand is too slow, space can be rented out as living space.
B2 also has a far higher floor area ratio by right than R3 or R4 lots, the most common zoning designation in inner-neighborhood Bucktown. In a time where the shortage of housing availbility is on seemingly everyone’s mind, This could mean the ability to make up for a residential unit lost to commercial use, stack a building with more units, build taller, or at the very least substantially add to a buildings value as land for a future, more robust development.
Sounds great, right? So why isn’t anyone talking about this?
Well, they kind of are. The focus of legislation on flexible storefront use still centers on converting to residential rather than the other way around. 43rd Ward Alderman Knudsen introduced a new ordinance this spring that allows qualifying buildings to convert their disused storefronts to apartments without going through the onerous zoning change process. Now, buildings carrying a B, R, and some D and C codes can apply for ground-level residential use with a much simpler request for administrative adjustment in a permit application.
Around the same time, the city launched the Commercial Corridor Storefront Activation Program. This is a program from the Department of Planning and Development that seeks to connect empty storefront owners with grant-fueled small business operators via nonprofit brokers.
In true Chicago form, these come as part of a long line of caveat-heavy amendments as opposed to a FAR retooling or repealing of existing hurdles to giving these buildings more flexibility from the get-go. In the Knudsen ordinance, storefronts can’t convert to residential unless at least 50% of ground floor spaces on the same side of the block are already being used as such. There’s also no flexibility in use after this administrative adjustment is enacted on the parcel. No live/work spaces and no future use as a storefront again.
Don’t get me wrong, I very much appreciate this ordinance and its spirit of cutting excess red tape to more quickly and efficiently optimize usage of these spaces, but wouldn’t it just be easier to more broadly roll out a Zoning code that allows for either use by right?
Everyone loves a corner store…right?
We have a saying at my company as a check against confirmation bias: “If he’s a good hitter, why doesn’t he hit good?” If these small residential businesses are so charming, so beloved, and a net positive to the neighborhood, then why aren’t they everywhere in the city?
Maybe the novelty of a business still existing on a residential corner in Chicago blinds us from the reality of living amongst them in the past. So many of these now-converted or boarded-up old storefront buildings were once taverns or liquor store/bar hybrids, sometimes referred to as “slashies.” Over 8000 taverns existed in Chicago around the turn of the 20th century. Today, there are fewer than 1000. Drunken stumbling, boorish behavior, and loitering around residential neighborhoods were a particular bugaboo for both Richie J and Richie M Daley. Both of the Daleys’ terms in office were during critical periods of population and reputation loss. Perhaps because of this, they were always sensitive to Chicago’s appearance to outsiders and had little sympathy for the role the neighborhood tavern played. “A bad liquor establishment can tear the fabric of a neighborhood and send it into decline,” Richard M touted when reminding Chicago precincts they could “Vote Dry” on the 1998 ballot. He was largely successful in his efforts: between 1990 and 2005, 1000 of Chicago’s remaining 3300 taverns were lost. One of Richie’s swan songs in office was taking this a step further, where anyone who lives within 500 SF of one of these businesses can petition to hold a hearing before the liquor board. Neighbors can get a hearing for ostensibly any reason, and the burden of proof is on the operator to prove they aren’t a nuisance. If the board isn’t satisfied with the operator’s case, they can pull their license.
Bad actors or not, once these neighborhood side street taverns are closed, our zoning code assures no future business can use the space. Businesses aren’t able to evolve to accommodate the neighborhood's needs, and residents are forced to arterial streets for any commercial activity.
There is no doubt we need more housing units in Chicago, but as a city with some of the worst traffic congestion in the country, it’s time for a heavy rethink on how we look at retail. What happens to carless residents when it’s 5 or 100 degrees out and you need some eggs? You have to walk a mile round trip to a busy street or to one of the massive strip mall developments Chicago seemed all too happy to welcome? Is it tacit acceptance that to live in most of Chicago, you need to own a car for basic subsistence because of a law we enacted 100 years ago?
When we have a zoning tool like B2 that allows for flexible, market-informed use of ground floor space while providing a large enough FAR to allow a higher unit count on a parcel, it seems incredible this code is not rolled out more.
Whether it be in Bucktown or Little Village, side street businesses have existed for generations because they serve an important function in urban life. While we may not need as many residential businesses as we once did, there is still a role for them today, and it should be up to the building operator to decide how to use their neighborhood retail space.