Key takeaways

Modular construction is a form of off-site construction in which buildings are put together by connecting a series of large pre-built blocks, or “modules.” These modules are constructed off-site under controlled plant conditions before being transported and assembled on-site. This research focuses on volumetric modular construction, a type of off-site construction wherein buildings are constructed by connecting and integrating pre-built three-dimensional sections. This elevated degree of module completion prior to on-site installation sets volumetric construction apart from traditional and two-dimensional prefabricated construction in terms of speed of project delivery and labour needs. We have segmented the identified European modular construction businesses by designated end-market applications into: (i) mixed, (ii) commercial & public and (iii) residential.

The European modular construction market remains highly fragmented with top-10 players holding a cumulative share of ~15-20%. The competitive landscape includes several large players, such as Modulaire Group, DFH Gruppe and Portakabin, as well as hundreds of smaller players with single-digit revenues. Most competition takes place within regional and national borders as internationalisation is inhibited by regional construction regulations, electricity network specifications and high transportation costs. Although industry executives believe that the market is approaching pan-European consolidation, with ~5-6 players dominating the markets in the decades to come, most incumbents currently mainly touch domestic grounds only. Nevertheless, the current market environment makes it easier for larger businesses to gain market share, with tightening costs, lower valuations and increased risk of bankruptcies of smaller players.

Investor-led interest has been strong, with >50% of identified European players being sponsor-backed (February 2024). Investors are attracted to the long-term modular construction adoption amid the European housing and construction labour shortages. At the same time, off-site construction significantly outperforms the traditional construction value chain in terms of ecological footprints, further driving the long-term demand for modular projects. On the downside, slow-growing adoption rates stemming from conservative consumer perceptions, the lack of customisation/bespoke construction offerings and risky financial profiles which may lead to insolvencies, serve as the key deterrents for financial sponsors.

ESG topics primarily relate to environmental and social issues. From an environmental perspective, modular players have crucial advantages over traditional construction peers in terms of carbon emissions. Herein, modular buildings can be sustainably produced due to the precision manufacturing of components inside a controlled factory environment, thereby ensuring less waste and energy efficiency maximisation. On the social side, modular construction companies contribute positively by delivering time- and cost-efficient housing projects, as well as by partially resolving labour shortages.

Company benchmarking

Market growth

The European modular construction market was valued at ~$24bn in 2021 and is expected to reach ~$32bn by 2027, demonstrating a CAGR of ~4.0% (PBC Today, November 2022)

Industry executives (interviews by Gain.pro) expect the Western European modular construction market to grow at a ~10% rate from 2024-2033

The global modular market is projected to grow from ~$103bn in 2022 to ~$142bn in 2028 at a CAGR of ~5.5% (Frost & Sullivan, December 2022)

Positive drivers

High demand for time- and cost-effective construction methods driven by rising construction costs of residential properties and housing shortages in Europe. Modular construction projects require ~50% less time and ~75% less on-site labour than traditional construction, leading to a total lifecycle cost reduction of ~20% (interview by Gain.pro)

Environmental advantages of modular construction will support its adoption. Producing ~45% lower CO₂ emissions and less waste in comparison to traditional construction (Energy Post, July 2023; Building, June 2022), modular construction methods are essential for decarbonising the construction sector, which accounts for ~37% of global GHG emissions (United Nations, September 2023)

Growing end-market demand will push robotisation and industrialisation of volumetric modular construction, unlocking profitability and cash generation for highly levered operating models (interviews by Gain.pro). In addition, the growing fleet of reusable RBs with low payback periods will secure long-term cash flows for commercial and public players (Adapteo, 2019)

Negative drivers

Negative cultural perception, exacerbated by the adverse publicity of early prefabricated, projects could slow the development of the modular construction market (interview by Gain.pro). This is combined with regulatory constraints and misclassifications, which inhibit the scaling and pace of modular deliveries (PropertyEU, October 2023)

High start-up and fixed costs threaten the business viability during the ramp-up stage. While traditional construction is flexible to changes in project pipelines, modular players bear substantial production CAPEX and fixed factory workforce (interview by Gain.pro). Low utilisation rates can severely harm modular players’ profitability, as evidenced by the recent bankruptcy wave (Urban Land, December 2023; Building Design, October 2023)

Architectural customisation trend reduces the attractiveness of modular players for project developers. While modular construction relies on a high level of standardisation, developers tend to require case-specific design changes, thus eroding the overall value proposition (interviews by Gain.pro; McKinsey & Company, May 2023)

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