Commercial rebuild costs: why calculators fall short
- RebuildCostASSESSMENT.com
- Jun 27
- 6 min read
Updated: Jul 4
The 79% wake-up call: Most commercial properties are underinsured
Our data shows that 79% of commercial properties in the UK are underinsured. This insight comes from over 34,000 rebuild cost assessments carried out by our RICS-regulated firm.
Many buildings are covered for the wrong amount. That means some policyholders may not receive enough to fully rebuild after a loss. Others could be paying too much in premiums for cover they don’t need.
This is a growing issue for landlords and property managers. Rising construction costs, outdated valuations, and guesswork all play a part.
To highlight the problem, we publish a buildings underinsurance infographic every year. The latest figures confirm the risk is real and widespread.
The good news? A desktop rebuild cost assessment gives you a clear, expert view of your property’s true rebuilding cost, both quickly and affordably.
What is commercial property rebuild cost?
The commercial rebuild cost is the total amount it would take to completely rebuild your property from the ground up if it were destroyed beyond repair. This figure includes:
Demolition and site clearance
Labour and construction materials
Professional fees (such as architects and engineers)
Allowances for design complexity or unusual features
Compliance with current building regulations
This is the definition used by RebuildCostASSESSMENT.com and aligns with the official wording from the Association of British Insurers (ABI):
“The rebuild cost is the amount it would cost to completely rebuild your home if it was destroyed beyond repair. It includes the price of labour and materials. This cost is usually lower than your home's sale price or market value.” – ABI
Understanding this difference is critical when setting the sum insured on your policy. Many commercial property owners mistakenly insure based on what they paid for the building, or its current market value.
Rebuild cost vs. market value
Put simply, the rebuild cost reflects the price to reconstruct the building from the ground up. The market value includes the land, location, and other external factors that don’t affect how much it would cost to build again.
Getting these confused can be costly. If your rebuild cost is too low, you risk underinsurance. If it’s too high, you could be overpaying your premiums.
For a deeper look at how these values differ, read our detailed comparison of market value vs rebuild cost.
To ensure a property is accurately insured, a professional assessment is essential.
What is the average clause in insurance?
The average clause, also known as the Condition of Average, is a standard feature in most commercial property insurance policies. It allows insurers to reduce any payout in line with how underinsured the property is.
Put simply: if your building is insured for only 70% of its actual rebuild cost, your insurer can reduce any claim by 30%, regardless of the size of the loss.
This isn’t a rare problem. Our latest industry data shows that underinsured buildings are, on average, covered for only 63% of what they need. That means thousands of property owners are at risk of receiving little more than half the value of any claim.
A simple example:
Actual rebuild cost: £1,000,000
Current sum insured: £700,000
You are underinsured by 30%
A fire causes £300,000 worth of damage
The insurer pays only 70% of that = £210,000
You cover the remaining £90,000 yourself
Amy Lillington, QC Team Leader at RebuildCostASSESSMENT.com, explains, “The average clause catches far too many property owners off guard. Even a small claim can be heavily reduced if the sum insured isn’t accurate.”
A property manager in Leicester recently used our desktop assessment service for an industrial unit. Their original sum insured was £450,000. Our professional assessment revealed the true rebuild cost was £700,000. Without that check, they would have been £250,000 underinsured and exposed to significant shortfalls if they’d needed to claim.
Don’t let the average clause cost you tens of thousands. Learn more about how the average clause works, or get an expert assessment to avoid the trap altogether.
Why free rebuild cost calculators can be risky for commercial property
It’s easy to see the appeal of an online rebuild cost calculator. They’re free, fast, and promise instant estimates. But when it comes to commercial property, that speed comes at a cost of inaccuracy.
Most rebuild calculators are built for simple residential homes. Commercial buildings are more complex. They vary in size, layout, and use. That means calculators often leave out key details that affect the rebuild cost.
What’s often missed?
Building materials used
Features like basements, lifts, or cladding
Access issues that increase site costs
Professional fees, planning costs, and VAT
Demolition and clearance
Rules under current building regulations
These tools might ask for your floor area and postcode. But that’s not enough to calculate an accurate rebuild cost. The figure you get could be far too low or too high.
That matters. If you’re underinsured, the average clause can reduce your claim by thousands. If you’re overinsured, you could be paying too much every year.
The safest approach? An affordable and efficient desktop assessment. It considers every factor unique to your building, so your insurance is based on facts and not assumptions.
Key factors that determine a commercial rebuild valuation
Many people assume rebuild cost is based on size alone. It’s not. A free online calculator might only ask for square footage and postcode. But our professional Rebuild Cost Assessment (RCA) looks at dozens of details to get an accurate figure.
Here’s what our assessors consider when calculating accurate rebuild costs:
The Basics
These are the core facts about the building:
Size of the building (external floor area)
Location (region, postcode, local construction costs)
Primary use (office, retail, industrial, mixed-use)
Type of building (single-storey, high-rise, listed, etc.)
Construction Features
Next, we look at the way the building is built. This includes:
Main building materials (brick, steel, timber,)
Roof structure and covering
Wall finishes and cladding
Window types
Design complexity (shape, features, architectural style)
Additional Costs
These are often overlooked, but they can add a lot to the total:
Demolition and site clearance
Professional fees (architects, engineers, planning)
Compliance with current building regulations
VAT
Access issues or restrictions
External works (paving, landscaping, boundary walls)
Listed status or conservation constraints
Regional cost adjustments
As you can see, it’s not a simple calculation. That’s why a professional desktop assessment is essential. It covers everything, so you get a rebuild cost you can trust.
Get the rebuild cost right and avoid underinsurance
79% of commercial properties in the UK are underinsured. If you're one of them, you could face serious problems. The average clause means any claim could be reduced by the same percentage you are underinsured.
Online tools and guesswork don’t give you the full picture. They often miss key details like building materials, demolition costs, or access issues. That’s why many property owners get caught out when they need to claim.
A professional Rebuild Cost Assessment from RebuildCostASSESSMENT.com is different. It’s:
Delivered by a RICS-regulated firm
Completed remotely with no disruption to tenants
Tailored to your building’s exact specifications
A cost-effective way to avoid underinsurance
Recognised by insurers and mortgage providers
Other helpful resources:
Important disclaimer: The information provided here is for general informational purposes only and is not intended as professional advice. While we strive to ensure all information is accurate and up-to-date, the content may not reflect the most current legal or regulatory developments, standards, or practices. No representations or warranties are made (express or implied) about the accuracy of the information provided, and reliance on this information is strictly at your own risk.
We do not offer financial advice and nothing within this content should be construed as such. We recommend consulting with a qualified professional who can provide tailored advice based on your individual circumstances before making any decisions related to insurance.
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