Is off-site construction the future of real estate?
All signs point to yes.
Off-Site construction is emerging as the major disruptive force of the construction industry. According to a report by Zion Market Research, the global off-site construction market is expected to generate around USD 175.15 Billion by 2025, at a CAGR of around 6.7% between 2019 and 2025.
Home builders are realizing the leg up that the off-site model offers over traditional residential construction methods. However, off-site construction hasn’t always had a history of favor with real estate developers. In the past, off-site construction has fallen in and out of popularity, particularly in the United States. This is perhaps due to the stereotype that prefabricated homes are cheaper and low-quality. But that misconception is disappearing, both domestically and globally. In fact, there are some serious benefits to off-site construction for real estate developers, including speed, improved quality, increased standardization and –perhaps most important – reduced cost.
Off-Site Construction and the Cost-Saving Impact on Real Estate Development
“Prefabrication and off-site construction processes have been used for years, but today, with the emergence of new technologies and construction practices, we have the ability to utilize these strategies to create innovative and quality buildings, while also improving construction productivity. These reported productivity benefits of prefabrication and off-siteization are particularly exciting in today’s economy given the benefits of creating superior buildings while saving cost, time and waste.” – Harvey Bernstein, VP of Industry Insights and Alliances at McGraw-Hill Construction
While off-site construction is hardly a new idea, its tendency to reduce costs of building projects has attracted the attention of real estate developers in recent years. There are multiple advantages to the off-site method that work together to drastically cut costs of a build.
It Eliminates the High Number of Contractors
Typically, a developer will hire a contractor, who in turn, hires a subcontractor. Then that subcontractor may hire more subcontractors, and on it goes. Off-site construction negates the need for multiple tiers of contractors because significant portions of the work will be done by a single company.
Accelerated Build Schedules
Off-Site construction, in contrast to traditional methods, is equipped to deliver shorter project timelines. Because offsite construction projects have a near factory-level method of building, there is less risk of delays and unforeseen complications on a build. A shorter timeline = less money spent. Plus, residential projects like condos and apartments have repetitive structures that can be executed even faster with an off-site build.
This isn’t to say that customization doesn’t factor into the off-site construction process. Companies who offer off-site services are accustomed to serving demands for custom homes. Yet with or without extensive customization, off-site construction projects are generally completed at a quicker pace by professionals who have developed a standardized process.
More Accurate Costs
Because building schedules are more predictable with off-site construction, this means that costs can be more accurately estimated compared with a typical on-site build. The standardization of the building process within a controlled environment helps decrease the likelihood of surprise expenses.
It Reduces Clean-Up Time
A typical on-site construction job leaves behind a copious amount of debris in its wake. The cleanup time slows down productivity and a project’s timeline. Off-Site construction prevents a significant portion of the on-site waste, thereby reducing dumpster pulls and the labor associated with the clean-up effort.
Safety is always a top concern for any contractor or developer. A traditional job site is an environment filled with hazards. Off-Site construction reduces safety risks during a build. For one thing, it requires far fewer power tools and heavy equipment, so it eliminates a large number of potential safety issues.
Additionally, since the pieces of the structure are already assembled off-site, when it arrives at its destination there are far fewer tasks required for the on-site team to perform.
Quality is perhaps one of the most important benefits of off-site construction. The controlled environment of an off-site facility provides the opportunity for more thorough quality inspections of units before they arrive on-site. This translates to less time wasted fixing unexpected problems and a decreased likelihood that issues will be overlooked before completion.
Off-Site Construction Savings By the Numbers
The cost-saving benefits of off-site construction are so huge, that it could scale to an industry that represents more than $100 billion in US and European real estate, delivering up to $22 billion in annual savings. But these big savings go beyond real estate. According to research conducted by McKinsey and Co., off-site construction is primed to shake up the entire US and European construction market in the coming years.
Off-Site construction has the potential to claim $130 billion of the market by 2030 in the US and Europe with moderate penetration.
Off-Site modular construction can increase construction speed by as much as 50%.
In the right environment, modular construction can cut costs by 20%.
Off-Site construction becoming more prevalent would help fill a $1.6 trillion productivity gap.
These predictions aren’t simply based on theory. There is mounting evidence that this disruption is already happening today. From their research, McKinsey and Co. discovered that in the United Kingdom, 40% of home builders surveyed said that they were already investing in manufacturing facilities or intended to do so in the near future. Earlier this year, Katerra, a US off-site construction supplier, announced a round of funding from Softbank that took its estimated overall value above $4 billion.
Off-Site Construction & ICG
Here at ICG, we serve numerous clients who are embracing the off-site construction model. This trend reflects the growing sentiment of the industry as a whole. ICG understands that home builders are working to decrease construction cycle times and improve quality. If you’re planning a commercial or residential development project, contact ICG to see how you can save time and cut costs for your build.