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How To Calculate The Rebuild Cost For Commercial Property Owners’ Insurance

By Darragh Timlin on October 5th, 2022

Knowing the rebuild costs of your commercial property can be valuable. In the event that your business was ever destroyed beyond repair, you will need to know how much it will cost to completely rebuild your property, including building materials, labour costs and re-installation of your utilities such as gas, electricity and water.

Business owners that own the building they operate from can take out property owners insurance which includes buildings insurance to help cover the costs of repairs to their property if it suffers severe structural damage. But your building’s insurance coverage should also cover the costs of a complete rebuild if you lose your entire building to a devastating fire, for example.

Don’t forget that the cost of completely rebuilding your premises will change over time, so you must regularly recalculate the costs of a rebuild and amend your building’s insurance policy to reflect the changing prices.

How To Calculate Your Rebuild Cost Yourself

The cost of rebuilding your property should include all materials and labour. These costs will usually work out lower than the price you would sell your property on the commercial market. The market value of your premises will usually be higher than what it would cost to build it again from scratch, so bear this in mind when you arrange your building insurance to help prevent you from paying higher insurance premiums than is necessary.

Your rebuild costs may vary according to the type and age of your property. Suppose your premises is made from non-standard building materials – not bricks and mortar – or have unique architectural features. In that case, it may cost you more to rebuild than a standard commercial building using traditional building materials.

In some rare cases, non-standard properties may have a rebuild cost higher than their market value, in which case you will need to insure your building against these higher rebuild costs to avoid any shortfalls on your insurance claim.

You can use an online calculator from ABI to calculate the costs of rebuilding a standard brick-built property from the ground up should it be destroyed by fire, flood or storm damage. Before you use the calculator, you’ll need to work out the external floor area for upstairs and downstairs – and more if your property has multiple floors.

Other Ways To Calculate Your Rebuild Cost:

Hire a chartered surveyor: While you can use the rebuilding cost calculator as mentioned above to calculate the costs of rebuilding a standard brick-built property, if you want to be more accurate with your calculations, it makes sense to hire a professional, such as a Chartered Surveyor, to do the work for you.

A basic survey from a chartered surveyor will cost around £250, and you can find a local chartered surveyor through RICS. Your surveyor will be able to calculate the costs of demolishing, clearing and rebuilding your property to its existing design using modern building materials and techniques.

The rebuild calculations will factor in rebuilding the property in accordance with current Building Regulations and other statutory requirements.

Why Do I Need to Know The Rebuild Cost Of My Property For Property Insurance?

You will need to know the costs of rebuilding your property so you know how much building insurance to take out to cover your costs should the worst happen. Once you have calculated your rebuild costs, your business insurance provider will use the figure to work out your building’s insurance policy premium.

If you hold a commercial mortgage on your property, your mortgage provider may insist you have adequate building insurance in place as a condition of your loan. If you don’t have any buildings insurance cover and you lose your property to a fire, flood or severe storm, you may be in breach of your mortgage agreement.

What Happens If I Underestimate My Property’s Rebuild Value?

If you underestimate your rebuild costs, it will cause a shortfall in your building’s insurance coverage. This means you will find yourself out of pocket if your property needs rebuilding.

It can be easy to underestimate the damage and devastation caused by a fire, and thousands of fires happen every year, causing enough structural damage to make the property unsafe. This means the entire building may need to be demolished entirely if it is damaged beyond repair.

What Happens If I Overestimate My Property’s Rebuild Value?

If you overestimate the value of your property rebuild, you will be over-insured and paying too much on your buildings insurance premium.

While it is better to be over-insured rather than under-insured, no one wants to pay more for their building’s insurance coverage than is necessary.

What Might Impact The Rebuild Cost Of My Property?

If your building is made from non-standard or specialist materials, such as stone, timber or thatch, it could be more costly to rebuild than a standard property built with bricks and mortar.

Many period properties and listed buildings in the UK will need specialist building materials, making the total rebuild costs more challenging to calculate and insure. There are also more rebuild challenges for a residential landlord letting an apartment in a block of flats or above a retail shop, as the rebuild may affect the whole building.

What Is The Average Estimated Rebuild Cost for UK Properties by Region?

The estimated cost to rebuild a standard brick-built property covering 1,400 square feet in the UK is around £243,000. However, this will vary depending on where you live. Estimated rebuild costs by region are:

  • Birmingham and the West Midlands = £231,000
  • Derby and the  East Midlands = £231,000
  • Durham and the North East = £222,000
  • Guilford and the South East  = £274,000
  • Leeds, Yorkshire and the Humber = £222,000
  • Manchester and the North West = £234,000
  • Peterborough and the East of England = £231,000
  • St Austell, Cornwall and the South West = £243,000
  • Wandsworth and London = £307,000

Conclusion

By measuring the length and width of the ground floor walls and assuming the upstairs is identical to the downstairs, you can multiply the two figures together to get your total floor area. Use the free rebuild calculator for insurance in the UK, as mentioned above, to get a rough idea of the cover you need.

It would help if you were as accurate as possible with your calculations, but you don’t have to be precise. It is essential to ensure you protect yourself with enough building insurance to cover your rebuild costs without leaving you out of pocket.

Darragh Timlin

With over 25 years’ experience, Darragh is an expert in all things insurance. Starting his career in commercial property underwriting, Darragh has worked for a number of global insurers and is now Managing Director of Brisco Business, part of the wider Henry Seymour Group.

All articles by Darragh Timlin

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