Modular construction: From projects to products

1 Capital projects & Infrastructure Modular construction: From projects to products by Nick Bertram, Steffen Fuchs, Jan Mischke, Robert Palter, Gernot Strube, and Jonathan Woetzel June 2019. Capital projects & Infrastructure Table of contents In brief .. 1. Preface & acknowledgements.. 3. Modular construction could scale to an industry that represents more than $100 billion in US and European real estate, delivering $20 billion in annual savings.. 5. Modular construction encompasses a variety of methods.. 7. Modular construction can cut schedule by 20 50 percent and costs by 20 percent.. 10. Labor dynamics and demand are at the top of the list of factors driving adoption of Modular construction.. 19. Many markets worldwide have the conditions in place for Modular construction to take root.

2 21. Modularization can disrupt the construction and real-estate ecosystem.. 23. Modular construction: From projects to products Capital projects & Infrastructure In brief For decades, construction has lagged other well as digital technologies that enhance sectors in productivity performance. Now there design capabilities and variability, improve is an opportunity for a step change: shifting precision and productivity in manufacturing, many aspects of building activity away from and facilitate logistics. Countering the old traditional onsite projects to offsite reputation of prefabricated housing as an manufacturing-style production. While Modular ugly, cheap, poor-quality option, some (or prefabricated) construction is not a new builders are focusing on sustainability, concept, it is attracting a fresh wave of interest aesthetics, and the higher end of the market.

3 And investment on the back of changes in the technological and economic environment. This Multiple factors determine whether a given research quantifies the potential benefits, market is likely to embrace Modular explores the challenges, and looks at whether, construction. The two biggest determinants this time, Modular construction will have a more are real estate demand and the availability widespread and sustainable impact. Among our and relative costs of skilled construction findings: labor. In places such as the US West Coast, the southern part of the United Kingdom, As one of the largest sectors globally, a Australia's East Coast, and Germany's major profound shift in construction can have cities, labor shortages and large-scale major impact.

4 Recent Modular projects have unmet demand for housing intersect, making already established a solid track record of this model particularly relevant. accelerating project timelines by 20 50. percent. The approach also has the potential Capturing the full cost and productivity to yield significant cost savings, although benefits of Modular construction is not a that is still more the exception than the norm straightforward proposition. It requires today. Our analysis suggests that leading carefully optimizing the choice of materials;. real estate players that are prepared to finding the right solution between 2D. make the shift and optimize for scale will be panels, 3D modules, and hybrid designs; and able to realize more than 20 percent in mastering challenges in design, construction cost savings, particularly as manufacturing, technology, logistics, and everyone involved moves up the learning assembly.

5 It also depends on whether curve. Under moderate assumptions of builders operate in a market where they can penetration, the market value for Modular in achieve scale and repeatability. Public new real-estate construction alone could owners and regulators can facilitate a shift in reach $130 billion in Europe and the United the industry structure, too. States by 2030. In many countries, Modular construction is Prefabricated housing has achieved a still very much an outlier. But there are sustainable foothold in only a few places, strong signs of what could be a genuine including Scandinavia and Japan. It has broad-scale disruption in the making. It is been in and out of favor in markets such as already drawing in new competitors and it the United States and the United Kingdom will most likely create new winners and since the post-war era.

6 Yet there is reason to losers across the entire real estate and believe the current revival could be different. construction ecosystem. The industry is adopting new materials as Modular construction: From projects to products 1. Modular construction's time may have nally come The bene ts Modular construction can speed construction by as much as 50%. In the right environment Driving demand Labor and housing shortages are the biggest and trade-offs, it can cut predictors of where Modular construction can gain costs by 20%. traction Australia, UK, Singapore, West Coast The opportunity All industry participants Modular construction could claim will need to make big changes $130B. of the market by 2030 in Modular manufacturers: Scale and optimize at moderate Developers: Productize and partner penetration, delivering annual cost savings of Materials suppliers: Prepare for a shift in $22B.

7 products and go-to-market; or enter the space Public sector: Bundle pipelines and update building codes This would help fill a $1 .6T. Engineering & construction firms: Preempt commoditization productivity gap identified Investors: Seek to understand new in 2017 opportunities 2. Capital projects & Infrastructure Modular construction: From projects to products 3. Capital projects & Infrastructure Preface & acknowledgements This work builds on previous analysis of Lasmar Hadj Belgacem, Tony Hansen, the construction industry's productivity Ivan Jelic, Tomasz Jurkanis, Praveen challenges and the levers that can help Matta, Andrey Mironenko, Maria Jo o deliver it. It focuses on the impact that Ribeirinho, Gaulthier de Robillard, David Modular construction can have on the Rockhill, Mukund Sridhar, Erik Sj din, and real-estate industry.

8 However, this is just Paul Zoghbi. one of the areas which can be impacted, and the disruptive elements discussed For their input and insightful discussions here apply throughout the construction with us, many thanks go to Bruno industry. Balbinot, Ambar; John Buongiorno, the Axis Group; Cesar Ramirez-Martinell, This research was led for McKinsey by Barcelona Housing Systems; Graham Jan Mischke, a McKinsey Global Institute Cleland, Berkley Group; Mats Williamson, (MGI) partner based in Zurich; Nick NRC Group; Jerome Smalley, BluePrint Bertram, an associate partner in London; Robotics; Stefan B gl, Max B gl; Marcus Gernot Strube, a senior partner in Hedman, BoKlok; Jamie Johnstone, Munich; Jonathan Woetzel, a senior Bryden Wood; Nate Willey, Cortland partner and MGI director in Shanghai; Partners; Jan-Hendrik Goldbeck, Steffen Fuchs, a senior partner in Dallas; Goldbeck; Joseph Schottland, Innovatus.

9 And Robert Palter, a senior partner in Stephen Jeffrey, Mace; Tom Hardiman, Toronto. The project team was led by Modular Building Institute; Fr d ric Barty Pleydell-Bouverie and comprised Augier, Nexity; Randy Miller, RAD Urban;. Hege Larsen, James McGeorge, Josh Natalie Somekh; Mark Skender and Todd Southern and Priyanka Kamra, all based Andrik, Skender; Ryan E. Smith, School of in London, and Bernardo Lara in Costa Design & Construction, Washington State Rica. University; Paul Larkin and Barry O'Neill, WE-Link; and Rainer Bareiss, Z blin. Many McKinsey colleagues provided helpful input and advice, including Sergey We are grateful for all the input we have Asvadurov, Jose Luis Blanco, Dominique received, but the final report is ours, and Christ, Marion Duriez, Stephan Eibl, all errors are our own.

10 Christophe Francois, Nicklas Garemo, Modular construction: From projects to products 4. Capital projects & Infrastructure Modular construction: From projects to products In 2017, the McKinsey Global Institute and McKinsey's Capital projects & Infrastructure Practice published research analyzing the construction sector's stagnant productivity growth and outlining ways to jump-start it. The report put forward seven strategies to improve productivity by up to 60 percent. Collectively, they could generate $ trillion in value enough to fund roughly half of the world's infrastructure spending.. Our work also pointed to an even bigger long-term opportunity: shifting to a Modular construction model based on more efficient manufacturing-style production systems and pre-fabricated components.