Important Insurance Considerations for Rapidly Growing Commercial Real Estate Values


Keeping up with rapidly rising commercial real estate values can be challenging for property owners. If your properties are worth more than you thought they would be, you may need to adjust your insurance coverage and plan accordingly. On the other hand, if your properties are worth less than you anticipated, that’s another good reason to reexamine your insurance plan and make adjustments where necessary.

If you’re operating under the assumption that commercial real estate values will continue to rise, it’s important to have a solid strategy in place for adjusting your insurance policies as needed. In this article, we’ll explore several key considerations when it comes to keeping up with rapidly growing commercial real estate values.

What’s Driving Rapid Growth in Commercial Real Estate Values?

If your properties are growing in value, what is driving that growth? Certain factors such as high demand, low supply, and global economic trends can all have a significant impact on commercial real estate values. Some of the factors driving rapid growth in commercial real estate values include:

Growth and Development

Urban and suburban areas that are experiencing high levels of growth and development are also seeing commercial real estate values rise as a result.

More Institutional Investors

Investors are increasingly choosing to invest in commercial real estate over other asset classes. This is due to the fact that commercial real estate has relatively low volatility, relative to other types of investments, and offers attractive yields.

Younger and Older Generations

Younger generations are interested in owning commercial real estate, and older generations, who generally have more liquid assets, are looking to shift their investments into real estate.

Review Your Exposure and Risk

When evaluating your exposure and risk, you should take into account all aspects of your particular situation. You should also consider the likelihood that something could happen and how serious it would be if it did. You can also use current information about your properties to estimate how your exposure and risk might change over time.

When reviewing your exposure and risk, take into account factors such as:

  • the types of tenants you lease to
  • the condition of your buildings
  • the location of your properties

Remember to focus on both the short- and long-term aspects of your situation so you can craft an appropriate insurance strategy.

Change the Amount of Coverage You Have

If you’ve been under-insuring your commercial real estate, an increase in value will force you to either put more money into your properties or risk losing them without the appropriate amount of insurance coverage.

If your properties are worth significantly more than your current coverage, you should adjust your coverage to match the new value. That way, you can rest easy knowing that the properties you own are adequately protected.

When you’re determining how much coverage to buy, it’s important to consider the replacement cost of your properties. Replacement cost is the amount it would cost to completely rebuild a property from scratch.

Many types of businesses operate under the assumption that their insurance policy covers the replacement cost of their assets. However, that isn’t always the case.

Adjust Your Insurance Coverage

If your properties are worth more than your current coverage, you may want to increase your coverage to match the new values. Increasing your coverage can be a good way to protect against an increase in the cost of insurance. If your coverage is undervalued, it can also help protect your assets from an unexpected drop in value.

On the other hand, if your properties are worth less than what you have insured them for, you’ll want to decrease your coverage as soon as you can. There are a variety of ways to adjust your coverage, including increasing your deductible, decreasing your policy’s limit, and adding a rider that reduces coverage in certain situations.

Be Wary of Coverage Exclusions

If your properties are growing in value, you’ll want to make sure the coverage on your policies is increasing accordingly. However, if your buildings are reaching the end of their useful life, you’ll want to be careful not to increase your coverage too quickly.

There are several types of coverage exclusions that property owners should be aware of. For example, if your policy has an exclusion for wear and tear, it won’t cover any damage that’s the result of normal wear and tear. Wear and tear is the gradual deterioration of a property over time due to normal use.

Maintain Adequate Reserves

Even if your commercial real estate values are growing, it’s important to maintain adequate reserves. You don’t want to be so eager to increase coverage that you end up under-reserving for the construction of new buildings or renovations. That could lead to serious financial and operational issues.

If your properties are worth significantly more than they were a few years ago, it’s time to reexamine your insurance coverage and adjust it where necessary. Doing so will help you keep your buildings adequately covered while avoiding any unnecessary financial strain.

Call to Get a Quote for Commercial Property Insurance

Rapidly growing commercial real estate values present challenges and opportunities for property owners and insurers. Property owners should monitor the values of their commercial properties to make sure they have adequate coverage. Insurers should be keeping a close eye on the commercial real estate market to make sure they are providing coverage at appropriate levels. There may be opportunities to offer higher coverage amounts to property owners who are currently underinsured.

Millers Insurance Group provides commercial property insurance to companies in a variety of industries, including cannabis-related businesses. Please reach out to us or fill out our online form to get an insurance quote today for your company’s commercial property coverage.

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