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ACCURATE REBUILD & REPLACEMENT COSTS ARE ESSENTIAL FOR COMMERCIAL PROPERTY INSURANCE
Why rebuild cost accuracy matters
Underinsuring a commercial building or its contents can reduce claim payouts by thousands of pounds. Insurers apply the “Average Clause,” meaning if your sums insured are too low, your claim may be reduced proportionally - even in partial losses like fire or flood.
How to Calculate Your Building’s Rebuild Cost
Rebuild cost is NOT the same as market value. It is the amount required to demolish, clear, design, engineer and rebuild the property from the ground up after a total loss.
- Include professional fees (architects, surveyors, engineers)
- Account for demolition & site clearance costs
- Factor in inflation & material cost changes
- Include specialist trades & structural requirements
- Account for listed building adjustments (if applicable)
- Use RICS-accredited Reinstatement Cost Assessments for accuracy
- Consider outbuildings, canopies, boundary walls & signage
How to Calculate Contents, Stock & Machinery Replacement Costs
Contents and equipment should be valued on a NEW-for-OLD basis - the cost to replace the items today, not what they are currently worth.
- List all office furniture, equipment & electronics
- Include plant, machinery & specialist tools
- Account for stock at maximum seasonal value
- Include POS systems, servers & IT infrastructure
- Replace items based on current market prices
- Review values annually due to inflation
- Don’t forget tenants’ improvements
Who Needs Accurate Rebuild Calculations?
Commercial Landlords
- Retail units, offices & warehouses
- Mixed-use buildings with tenants
- Industrial units & workshops
- Multi-property portfolios
- Properties requiring lender-approved reinstatement values
Business Owners & Occupiers
- Manufacturers & logistics firms
- Restaurants, cafés & hospitality businesses
- Offices with high-value equipment
- Businesses with specialist machinery
- Any operation that cannot afford underinsurance
FREQUENTLY ASKED QUESTIONS
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How often should rebuild costs be updated?
Rebuild values should be reviewed at least every 3–5 years or whenever building modifications are made.
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Is rebuild cost the same as market value?
No - market value includes land. Rebuild cost only covers demolition, clearance and reconstruction of the physical structure.
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What happens if I underinsure?
Underinsurance may trigger the Average Clause, reducing claims payouts proportionally even on partial losses.
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Do insurers require an official survey?
Many insurers accept RICS Reinstatement Cost Assessments. For high-value or complex buildings, surveys may be required.
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How do I calculate contents replacement values?
Contents and machinery should be valued at today’s NEW-for-OLD replacement cost, including specialist equipment and electronics.