Property Owners: Time to Review Insurance Coverage due to Rising Costs
Commercial construction labor and material costs continue to rise. Property owners are advised to review insurance for sufficient coverage.
The cost of commercial property construction has been rising due to factors such as labor shortage, increased costs for materials from trade tariffs, higher prices for land, and higher demand for new construction after devastation by a number of hurricanes.
San Francisco Leading in Soaring Construction Costs
Across the board increases are reported in the 2018 Quarterly Construction Cost Report for North America by a cost management organization called Rider Levett Bucknall. CRE Models compared that to their reports from 2012 and found a 30 percent average rise in construction prices in the past eight years. Some major cities have seen even higher increases. To put that into a more general context, the national Consumer Price Index only saw an increase over around 11 percent with that same 6-year period.
Locally, San Francisco has seen an astounding increase of almost 51 percent, as reported by a construction cost data site Gordian, using models based on a five to 10-story office building. Their findings show San Francisco topping the charts for construction costs. Gordian approximates commercial construction costs at $261.24 per square foot for San Francisco. Compare this to cities at the bottom of the list, like Johnson City, Tennessee and Fayetteville, Arkansas, with prices in the $170 per square foot range.
Construction costs rose by approximately two percent across the nation in 2019. Experts are predicting that costs will continue to rise with no resolution to the current causes.
Many Factors Causing Commercial Construction to Skyrocket
The major reasons for construction cost increases include:
- Rising material prices
- Rising labor prices
- Material shortages due to rebuilding projects caused by multiple natural disasters
- Shortage of skilled laborers
- More and more burdensome city requirements for building
- Building Code Upgrades
Not all commercial construction costs have risen at the same pace. Urban high-rises, that tend to use a significant amount of materials like glass and steel, are seeing a higher rate of increase. In comparison, prefab industrial or modest commercial and multifamily projects have fared better, with less dramatic cost increases.
The COVID-19 pandemic also can’t be overlooked as a contributing factor to rising construction costs: Government-ordered work stoppages, construction sites shuttered due to infections, and a vastly disrupted supply chain have caused a significant ripple effect within the industry.
Projects where ground was broken pre-COVID have experienced delays, while the demand for new construction hasn’t faltered in many markets.
Property Owners Advised to Review Insurance Policies
For commercial property owners, rising commercial construction costs are important to note, even for those who aren’t planning new construction.
With current costs showing few signs of slowing their ascent, there are significant implications and risks to commercial property owners. It’s essential right now to take the time to review and update your existing insurance policy.
In the untimely event that property damage occurs and requires reconstruction, you want to be sure your policy has allocated enough replacement costs for rebuilding, to keep pace with the increased construction costs.
No one wants to find out that their commercial property insurance is based on outdated cost estimates.
Not having enough coverage can be devastating to a commercial property that needs to be repaired. It is much preferable to have adequate coverage upfront than paying many times more later.
Review your policy with your trusted commercial property insurance agent to make certain you have enough coverage to cover today’s higher construction costs in the event that insured perils cause construction repairs or even rebuilding.
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