Written by William Paull
Co-Founder & Account Director
Reviewed by Jeff Forbes
Co-Founder & Account Director
On this page
- How much have construction costs risen in Australia?
- Why doesn't my bank valuation, or what I paid for the building, tell me what to insure it for?
- What drove the construction cost spike after 2020, and has it stopped?
- If my policy has automatic indexation, why would I still be underinsured?
- If I set my sum insured a few years ago and indexed it every year since, could it still be short?
- What does it actually cost to rebuild a commercial building in Australia now?
- What should I actually do with this information?
- FAQ
How much have construction costs risen in Australia?
Non-residential building construction costs across Australia rose 4.4% in the year to June 2026, and about 40% since 2018, on the Australian Bureau of Statistics' construction producer price indexes. That rise is what your sum insured has had to keep pace with.
Nobody sends you a letter when your building becomes underinsured. The cost of steel, timber, and labour has moved every year since 2020, and your policy has renewed quietly alongside it. Our guides to underinsurance and the co-insurance clause explain what a gap costs you.
Why doesn't my bank valuation, or what I paid for the building, tell me what to insure it for?
Only the cost to clear the site and rebuild belongs on an insurance policy. What you paid mostly reflects the land. A bank's lending valuation is what the bank could recover on a sale. Our guide on how to calculate your building sum insured explains why.
What drove the construction cost spike after 2020, and has it stopped?
Non-residential building construction costs across Australia (commercial and industrial) rose 36.8% between June 2020 and June 2026, according to the Australian Bureau of Statistics. The ABS names a materials shortage (timber and steel) first, then labour shortages. Costs were still rising 4.4% a year to the June 2026 quarter.
The ABS now links those labour shortages to competition from public infrastructure and defence projects, and to rising industry insolvencies extending build timelines.
When a flood, cyclone, or bushfire concentrates rebuild demand into one region, as after the 2022 South East Queensland floods, local tradespeople and materials get booked out and priced accordingly. That is why professional rebuild-cost valuations carry an allowance for cost escalation after a catastrophe as a named line item.
The pressure point has shifted from timber and steel (now stabilised) to energy-linked materials such as concrete, aluminium, and copper. An owner who reads "stabilised" as "come down" is reading someone else's market.
If a commercial building's sum insured was last set properly in June 2018, that figure is being asked to fund a rebuild in a market about 40% dearer than when it was measured. Nothing about the building changed. What changed is the cost of putting it back.
If my policy has automatic indexation, why would I still be underinsured?
Indexation only ever compounds the figure it started with. Where indexation applies at all, it tracks a building-cost index at a rate the insurer sets, which since 2020 has run well behind real costs. If the starting figure was a guess rather than a valuation, indexation just carried the guess forward, unchanged.
Plenty of commercial policies don't apply automatic indexation at all: the sum insured simply stays wherever the owner last set it. We explain how we set our own renewal uplift, and where we stop trusting it, in our sum insured guide.
A rising premium need not lift the sum insured: the Australian Financial Complaints Authority has said so, as our desktop building replacement estimate page explains.
If I set my sum insured a few years ago and indexed it every year since, could it still be short?
Yes, and it is a common way a careful building owner ends up underinsured. A sum insured set in June 2020 and nudged up a few per cent each renewal has moved a fraction of the 36.8% rise in non-residential costs across Australia since then (ABS). Unless someone checks sooner, the gap is found at claim time.
Picture a small industrial building insured for $1.2 million in June 2020, based on what it would have cost to rebuild at the time. Nudged up a few per cent at each renewal since, that figure might sit somewhere near $1.4 million today. Non-residential building construction costs across Australia rose 36.8% over that period, which puts the same rebuild nearer $1.64 million.
That is a gap of roughly a quarter of a million dollars on a modest building. The owner did everything asked of them: they held the cover, paid the premium, and let the indexation run. The number was still short.
A sum insured also has to survive a rebuild that can take well over a year. In Australia, the professional practice is a properly costed escalation allowance built into the valuation itself, and a short review cycle. The Australian Institute of Quantity Surveyors' guidance is a fresh replacement-cost valuation every three to five years, and sooner if costs are moving quickly.
What does it actually cost to rebuild a commercial building in Australia now?
There's no single national number, because every building is different, but the worked example above shows the shape of it. Rebuild cost also has to include demolition and debris removal as well as professional fees, not just materials and labour. That is where a rough per-square-metre guess falls short. Every component is in our sum insured guide.
What should I actually do with this information?
Replace the guess with a professional assessment, on a review cycle short enough to keep pace with a market that is still moving. Consolidated Insurance Brokers commissions a desktop building replacement estimate at no cost to you at new business and at every renewal, so the figure on your policy is a professional's number, not last year's guess indexed forward.
We commission it for our purposes as your broker, to inform the advice we give you. If you know the year your own figure was last set, how far these costs have moved since turns the index above into a single percentage.
Falling premiums are no evidence that your sum insured is adequate: why your commercial building might be underinsured explains why a soft market is the moment to fix the number.
FAQ
How much have construction costs risen in Australia since 2020?
Consolidated Insurance Brokers works from the Australian Bureau of Statistics figures. Non-residential building construction costs across Australia, the category covering most commercial and industrial buildings, rose 36.8% between June 2020 and June 2026. Costs are up about 40% since June 2018, and rose 4.4% in the year to June 2026.
Have Australian construction costs stopped rising in 2026?
No. At renewal, Consolidated Insurance Brokers generally lifts an adequate sum insured by the latest annual Australian Bureau of Statistics figure. Non-residential building construction costs across Australia rose 4.4% in the year to June 2026. The pressure is now on concrete, aluminium, and copper rather than timber and steel.
What caused Australian construction costs to spike after 2020?
A materials shortage, a labour shortage, and a demand surge all hit at once. For a sum insured set before the spike, Consolidated Insurance Brokers checks it still matches rebuild costs. Timber and steel prices surged through 2021 and 2022, and the Australian Bureau of Statistics still names labour shortages as a driver today.
Does rising construction cost mean my commercial building is underinsured?
Not automatically, but it is a common cause of underinsurance: a sum insured set years ago and only indexed modestly since. Consolidated Insurance Brokers commissions a desktop building replacement estimate at new business and every renewal. Whether yours is affected depends on when the building was last properly valued, not indexed. Our guide Underinsurance: The Biggest Risk to Commercial Building Owners explains how to check.
How often should I update my sum insured to keep pace with construction costs?
Ideally at every renewal. At Consolidated Insurance Brokers, we commission a desktop building replacement estimate at no cost to you at new business and each renewal. Without that, get a full professional replacement-cost valuation at least every three to five years, sooner while costs move as fast as they have since 2020. Indexation between valuations cannot stand in for one.