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  . . . . . . . . . . . . . . . . . . . . . .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.
                                      and investment on the back of changes in the      —  Multiple factors determine whether a given 
                                      technological and economic environment. This          market is likely to embrace modular 
                                      research quantifies the potential benefits,           construction. The two biggest determinants 
                                      explores the challenges, and looks at whether,        are real estate demand and the availability 
                                      this time, modular construction will have a more      and relative costs of skilled construction 
                                      widespread and sustainable impact. Among our          labor. In places such as the US West Coast, 
                                      findings:                                             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. 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        —  Capturing the full cost and productivity 
                                         percent. The approach also has the potential       benefits of modular construction is not a 
                                         to yield significant cost savings, although        straightforward proposition. It requires 
                                         that is still more the exception than the norm     carefully optimizing the choice of materials; 
                                         today. Our analysis suggests that leading          finding the right solution between 2D 
                                         real estate players that are prepared to           panels, 3D modules, and hybrid designs; and 
                                         make the shift and optimize for scale will be      mastering challenges in design, 
                                         able to realize more than 20 percent in            manufacturing, technology, logistics, and 
                                         construction cost savings, particularly as         assembly. It also depends on whether 
                                         everyone involved moves up the learning            builders operate in a market where they can 
                                         curve. Under moderate assumptions of               achieve scale and repeatability. Public 
                                         penetration, the market value for modular in       owners and regulators can facilitate a shift in 
                                         new real-estate construction alone could           the industry structure, too. 
                                         reach $130 billion in Europe and the United 
                                         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. 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