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According to McKinsey & Company, the U.S. construction market is currently experiencing a massive shift from traditional custom onsite construction to productized offsite construction. This transformation is expected to create $265B in annual profit that will reverberate across the construction value chain benefiting owners, general contractors, and subcontractors that position themselves properly.
Today, the U.S. Construction Industry spends north of $1.3T annually and represents one of the largest construction markets in the world, yet Offsite Construction is still at the early stages and lags behind countries like Japan, Germany and the UK, who are further along their adoption curve. But that’s about to change.
In this post, we sit down with Offsite industry experts Ryan Smith, Founding Partner at MOD X and Ryan Ware, VP of Construction and Co-founder at Vantis. We discuss what it will take for the US construction industry to reach its full Offsite potential and how to capture the lion share of that profit pool in the next 5 years.
Q: Ryan Smith: Offsite construction is set to grow rapidly in the next 5+ years, what do you believe are some of the major barriers in the U.S. that general contractors, developers and owners must overcome in order to make this a reality?
A: Offsite construction necessitates a fundamental paradigm shift and operational change for all traditional construction stakeholders. Some of the barriers that are slowly eroding away include: regulatory control for land use, codes for review / inspection, outdated financing structures that limit early draws for factory production, the lack of investment into vertically integrated teams and IT enabled and horizontally distributed supply chains, and the unwillingness to share data and knowledge across the sector. These barriers continue to limit offsite manufacturers and other stakeholders from delivering on the promise of industrialization. While false stigmas still exist, the challenge of cultural barriers is real and must be addressed to realize offsite’s double digit growth potential in the next 5 years.
Q: Ryan Smith: Currently the U.S. lags other countries in Offsite adoption, but the market size provides a massive opportunity. What can the U.S. learn from other countries?
A: What we learn from other countries is that construction is still a regional affair. This means that to have real sustained growth of industrialized methods of construction, a regional ecosystem of supply chain, labor skills, technology and business development needs to grow concurrently. What Sweden, Scotland (75%+ of all housing uses panelized or modular) and Japan (15% of all housing is modular) teaches the U.S. is to build regional ecosystems of offsite construction by building local capacity. This is important because of the fragmented nature of the U.S. regulatory system and prohibitive shipping costs in our distributed urban centers.
These countries are the size of a region of the U.S., all under one code and working in a cohesive and integrated supply chain and have vertically integrated and consolidated into larger companies than most U.S. manufacturers and therefore have the capital to invest in R&D and technology to further improve productivity and optimize delivery.
Q: Ryan Ware: As a successful general contractor with a strong Offsite focus, what challenges did you have to overcome given the limited number of modular-focused design firms and factories?
A: The first step is overcoming the mindset shift for some of our stakeholders as getting all parties to understand that offsite is not a new method of construction. Offsite has advanced for centuries with technology and manufacturing capabilities that give the construction industry far better control than we had decades ago.
Our goal is to look for design and factory partners that have a solid understanding of the integration of offsite solutions (i.e. a solid pre construction process), and aim to work together over numerous projects to begin to learn and have real validated data, and this includes having several different modular factories as partners. Each manufacturer brings different experiences and processes that allow us to evaluate and continuously improve our process for each new offsite project we take on. We want to be a driver in establishing workflows with architects and factories and help bridge the gap between the two entities so we can see greater adoption of offsite solutions to improve our industries productivity.
Q: Ryan Ware: Disruption is always a fear for industry leaders. What advice do you have for general contractors in the U.S. who are aware of the shift to Offsite construction but aren’t sure what they should do to capitalize on it?
A: We like to look at change as advancement, not disruption. Most people often link disruption with a negative impact to them, rather than a positive, something that provides them with more. As change hits at an extremely accelerated pace, it may seem overwhelming, but taking incremental steps towards that change gives you ample opportunity to learn.
My main advice is to go into any new offsite project with an open mind that not all parties have it figured out, but also understanding that it’s a great opportunity to learn together. Those not in fabrication must learn from the manufacturers who have a different approach, while the manufacturers have to learn from the industry to better understand what is needed by trades who remain on site. We are actively looking on how best to use the technologies we have, as well as looking at new ones we need to optimize all parties.