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    • Faq
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    • Built 2 Rent & Apartments
    • Off Site Construction
      • Top 10 Reasons 4 Off Site
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  • Home
  • Practice Areas
  • Construction Law
  • Construction Mediation
  • Cost
  • J. Don Overton
  • Faq
    • Arbitration Awards
    • Arkansas Lien Law
    • Business Collections
    • Deposition FAQ
    • Eminent Domain FAQ
    • Mediation FAQ
  • Built 2 Rent & Apartments
  • Off Site Construction
    • Top 10 Reasons 4 Off Site
    • 2020 - Modular Growth
    • McKinsey Report FAQs

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CONSTRUCTION, REAL ESTATE, HOSPITALITY, SMALL BUSINESS & TAX LAW

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McKinsey Report on Modular Construction

Modular-construction-from-projects-to-products-full-report-NEW (pdf)Download

10 Takeaways From McKinsey's Modular Construction Report

 

1. Modular construction can reduce project timelines by as much as 50% and costs by as much as 20%.

As a result of utilizing pre-engineered designs when applicable and  fabricating modular units while the foundation of the site is prepared,  modular construction can reduce construction timelines by as much as 50%  compared to traditional construction. Increased efficiency, lower labor costs associated with manufacturing  units along a production line, and consolidating operations under one or two individual contractors instead of many can reduce total costs by as much as 20%.  In addition to the raw savings, though, modularization provides even more opportunities to improve cost efficiencies—directly tied to its ability to shrink schedules and complete projects faster.


“Shorter project schedules are a huge advantage for developers that  sell their units in blocks or rent them out," reads the report. " It  allows them to begin collecting revenue sooner, paving the way to higher  internal rates of return, improved cash flow, and reduced market cycle  risks.”

2. Not all modularization is the same.

Modular construction is a broad term often used to describe a number  of building processes that vary in complexity and scale. On the low end  of the spectrum is panelization, whereby teams build smaller segments of  a building, such as individual walls, off-site, and connect them on-site.  On the higher end  are volumetric modular units, which are  three-dimensional and complete with all walls, flooring, ceiling, and  sometimes even finishes, such as cabinetry and appliances. These are  then stacked onto the foundation.

3. There are seven key predictors of modular adoption.

While modular construction can create significant time and cost  efficiencies, it is better suited for certain environments than others.  The report identifies seven factors that should be taken into  consideration to determine whether a location is ripe for  modularization:

  • Regulatory Conditions
  • Access to Materials
  • Quality Perception
  • Supply Chain & Logistic Conditions
  • Local Site Constraints
  • Labor Availability
  • Housing Demand 

Of these McKinsey identifies labor availability and housing demand as the two most important indicators.  Based on its analysis, the regions most likely to experience growth in  modular construction are those undergoing a shortage in skilled  construction labor with a high demand for new housing. 


4. Modular construction has already gained popularity abroad.

Modular construction is not a new development,  and has already been widely adopted in Scandinavia, for example. In  fact, 45% of the current housing in Norway, Sweden and Finland was built  modularly. That doesn’t appear to be the end of the expansion, either. 

5. Modular construction has great potential in the United States.

One country showing promise for the expansion of modular  construction, based on McKinsey’s seven factors, is the United States.  Not all regions are prime for adoption, however. Major predictors  considered, McKinsey suggests the West Coast would benefit most from  modular construction. 


6. The misperception of low quality must be overcome. 

Since a brief boom in America following WWII, modular buildings  gained the unfortunate misperception of being low-quality and  unattractive.  “The industry will need to overcome lingering perceptions of the  post-war era that prefab housing is only a poor-quality, cookie-cutter  solution for the masses,” states the report.  McKinsey's analysis supports the  assertion that  constructing modularly doesn't equate into boring or unoriginal  buildings. 


7. Modular construction is poised for widespread growth.

Modular construction has been around for decades, but has never made a  significant foothold in America—rising in popularity in response to  post-war demands for housing, but dwindling shortly thereafter. 

The key difference today, states the report, is the rise of digital  technology, which has enabled engineers to create stronger, more  functional, and more beautiful modular designs than ever before, making  it well-positioned to have a lasting impact. 


8. Modular construction has more than real estate applications. 

While the adaptability of the modular construction process naturally  lends itself to producing high quantities of similar apartment units or  condos in real estate, the possibilities don’t end there. As the report notes, modular construction can be applied to many industries to serve a number of functions. 


9. Benefits extend beyond the construction industry.

In addition to the immediate benefits of the construction industry,  the adoption of modularization would have advantages that ripple through  other elements of society. Some of the wider-ranging effects of the  efficiencies of the modular process include:

  • Growth & Wage Increases for Companies Saving Money Through Modular Construction
  • Safer Working Conditions for Construction Teams
  • More Affordable & Higher-Quality Housing.


10. Modular construction has its challenges, but an experienced team can eliminate these.

Modular construction boasts several important benefits that make it  an excellent option for large-scale construction in the United States  and throughout the world, but it does come with some challenges.  “Modular construction requires a significant shift in mindset and  methods—not to mention the need to establish manufacturing  environments,” notes the analysis.

In other words, this type of construction represents a very different  approach to building than traditional construction in terms of design,  building and installation.

Owners and Developers looking to maximize the benefits of modular construction  should work with a firm with the experience to meet the demands of this  innovative process with ease.


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