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Real estate and construction are two industries that have intersected for generations. There has always been an inexorable link between the two, and there always will be. Regardless of whether a broker or real estate firm has any intimate knowledge about construction, my recommendation is that they have at a minimum a basic knowledge of the latest industry trends. Even the most rudimentary awareness of current trends in construction will inevitably enhance any real estate broker’s ability to effectively serve the full range of their clients’ needs.
One red-hot trend that has captured the imagination of investors, developers and other real estate stakeholders is modular construction. At my own firm, we’ve been actively following the trend and researching how we might incorporate it into future projects. Essentially, modular construction refers to the off-site construction of several key components of a structure, a trend that is poised for continued and rapid growth. This is due in part to its ability to alleviate the two most common fears key stakeholders have: projects that come in over budget and those that are delivered later than planned, both of which can have very deleterious effects on a project’s bottom line.
The impact of technology on the construction industry is especially evident in modular. Factory-made steel modules outfitted with the latest electrical and plumbing systems and even high-end finishes and facades can now be transported and then stacked on-site with remarkable precision, often in less time than traditional construction would take. Remember Legos? The analogy actually isn’t a stretch, and is instead illustrative of the concept. The application of evolving technologies allows for extremely accurate measurements that practically eliminate the often substantial margin of error that is ever-present with more traditional construction methodologies. Modular construction may also lead to less reliance on highly skilled workers which serves to lower the risk of human error while simultaneously reducing labor costs. The potential list of cost-saving benefits that attach to modular construction is long, and it means more attractive opportunities for the clients that real estate brokers aim to serve.
What does all of this mean for the real estate industry as a whole? Well for one thing, the modular method has gained a very strong foothold in low-rise housing projects as well as in hotel construction. Speaking from experience, this is of keen interest to family office and high-net-worth real estate investors that are looking for investment opportunities that can deliver continuous streams of income over the long term. They are often attracted to modular properties because of their lower barriers to entry, which create a higher upside for investors. The projects also have a faster completion time, which means that multifamily units and hotel rooms will begin streaming revenue sooner, a valued metric that is of strong interest to capital investors.
Clearly, the rise of modular construction is impacting the practice of real estate in a number of ways. For example, price-conscious clients and those who have specific budgetary limitations may be able to gain access to housing or commercial properties in locations that otherwise might have been beyond their reach. This includes many of the hottest and most desirable markets in the country. This is especially good news for brokers who earn their living in geographical areas where the cost of housing has escalated at a pace that prices many potential clients out of the market.
Is modular construction here to stay? If venture capital money from Silicon Valley is any indication, the answer is a resounding yes. It is estimated that more than $1 billion has flowed to modular building startups in the past few years alone. It is also noteworthy that the modular construction phenomenon affects the real estate industry from coast to coast, from San Francisco to New York City.
Brokers who keep an eye on construction trends will not only be in good stead with their existing clients, but will also be better positioned to bring more to the table. For family offices, high-net-worth individuals and other investors, the time may be right to consider taking a look at projects that feature modular construction.