Over the last 18 months I have heard time and time again that the increase in my apartment, strip center or office building’s value(s) is/are being increased too much. These unverified statements can create issues at renewal if they are not addressed beforehand. What is driving higher than normal building value increases?

A number of factors have coincided to mean that rebuilding costs have hit record highs in recent years. Thru the first quarter of 2024 The Building Cost Information Services General Building Cost Index is at 2.5% on building and 4.2% on machinery. This is down from over 10% less than 2 years ago. While down from the record increases these increases are higher than historic averages.

Construction costs are at near record highs, these increases are being driven by the following:

• Material shortages continue to create problems.
• Some materials have seen huge increases such as timber and structural steel sections due to a global increase in construction, tariffs and supply issues caused by Covid.
• Labor costs continue to rise due to a shortage of labor in the construction sector.
• There’s a driver shortage (see my blog of February 12, 2024) this   coupled with increased fuel prices means it costs more to distribute building materials which is further driving prices up.
• Rising energy costs have and will continue to push up the costs of producing materials which will be passed on to the customer.
• There’s been substantial increase in demand for building repairs and improvements.
• Large infrastructure projects have also increased demand for both labor and materials.

So, what does all of this mean to you the owner of a building that you purchased as an investment to create positive cash flow from?  It may be the proper time to sit down with a Trusted Choice Independent Insurance Agent and review the values of all of your properties and your entire risk management program. With expenses increasing the last thing you need is to participate in a loss for not being in compliance with the co-insurance clause in your policy.