After decades of relatively slow change, the shortage of skilled labor, megaprojects and a shift to modularization are quickly disrupting the construction industry and broader ecosystem. These new trends are taking hold of the contractors who need to quickly respond by re-evaluating their focus, accelerating digitization and be open to new collaborations. These shifts cut across all individuals within the industry from design professionals to subcontractors to general contractors to the labor workforce.

Because of the challenge of attracting and retaining skilled labor, we see contractors turning to modular construction. While prefabricated construction isn’t something new, it is creating an upsurge of interest and investment due to evolutions in the technological and economic environments. Modular construction has taken a stronghold in various international markets like Finland, Sweden and Japan, but only 3% of construction in the United States is prefabricated. According to a report by McKinsey & Company, it’s estimated that modular construction could represent more than $100 billion in U.S. and European real estate by 2030.

This type of construction lends itself favorably for increases in housing demands. McKinsey & Company also reports that the prefabrication process can speed construction with cost savings estimated at up to 20% of the projected cost. While the cost savings are attractive, it is important to remember there needs to be recurring projects that generate enough efficiencies to justify the cost of plant production and transportation. There are several industries such as housing, schools, offices, hotel and hospitals that lend themselves to these attributes. Also, the use of technology through building information modeling (BIM) creates savings with time and efficiency in the field by reducing the amount of rework.

Another trend relates to the type of construction projects being brought forth. There are a substantial number of “megaprojects” – from Amazon Distribution warehouses to large infrastructure projects on roads, highways, and airports, to pipeline projects across the country. Many of these include green construction and involve new technology like electronic batteries, alternative energy, etc.

Approximately five years ago, only 3% of the construction starts were megaprojects. In 2019, this number increased to 33%. Megaprojects tend to be concentrated in the south and the western regions of the United States, while California is one of ten states that account for 60% of the megaproject construction. Other states include Texas, New York, Florida, Washington, Illinois, Pennsylvania, Georgia, Ohio and North Carolina. These large-scale projects come with their own risk and require strong project-level management, as well as a need to consider the use of joint ventures to spread the risk. Warehouse construction also continues to show future growth with online consumer spending habits being a major contributor. A national real estate report shows that 70% of current warehouse construction is underway without having a buyer locked in on the real estate.

Contractors need to pay attention to these evolving trends and the impact they may have in the future. We can help you evaluate the trend and impact and assess your strategic choices to warrant the benefit rather than risk being left behind.

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About the Authors

Matthew R. Mallinak

CPA
Partner, Assurance and Advisory

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