PREFABRICATION, MODULARISATION & INNOVATION

PREFABRICATION, MODULARISATION & INNOVATION BUROFOUR.COM

A roundtable discussion chaired by Russell Doughty explored whether off-site construction is indeed a cheaper and faster option for developers, and what the industry needs to do to reap the benefits.

“Our clients are keen to try modular, but they want to know why it will be better than traditional construction. The stumbling blocks they come across are often commercial, rather than technical,” said Doughty.

“When talking to certain clients, I don’t have in my mind three or four compelling reasons why they should pursue it,” Colin Bartlett, Director of Residential at Buro Four, added.

Is scale the main area of sensitivity?

The event aimed to address some of these issues, and discuss whether consultants should be making the case for this relatively new and, at its current scale, a relatively untested form of construction.

COST CONSIDERATIONS

The bad news, for developers at least, is that at the moment modular construction does not necessarily generate a cost saving compared to more traditional methods. In fact, current estimates suggest that building costs can be up to 15-20% higher.

Director of Residential at Dorrington, Duncan Salvesen, said this would be hard for investors

Modular construction is the hottest topic in the residential property industry at the moment.

Big names such as Legal & General and Berkeley Group have already committed to constructing some of their units off-site in factories, with others are looking to follow suite.

But while the idea has undoubtedly gained momentum, there are still question marks over key viability issues such as cost, construction time and the level of associated risks.

to overcome. “On day one, it’s very difficult as an investor to spend 20% more,” he said.

GETTING IN EARLY

The panel agreed that, to keep costs realistic, developers need to commit to modular early on in the design process and be willing to adhere to a fairly standard specification and module size, both within an individual scheme and across multiple projects.

“When clients leave it open whether they go traditional or modular, leaving tolerance for both in a design causes headaches,” said Alex Hyams, an Associate at alinea.

“If you stick to a modular design and there are no late changes, you don’t bleed too many traditional elements into it and you don’t lose much of that programme saving,” he continued.

However, there is an economy of scale, and costs are likely to come down if modular construction becomes more widely adopted. “There could be cost benefits eventually, especially when you get scale like Legal & General or Essential Living,” said Peter Ladhams, Director at Assael Architecture.

To date, modular construction has been most widely used in student accommodation, where units are small and each is a cookie-cutter replica of the last. So can it work in mainstream residential market where expectations are much higher?

PRIVATE RENTAL, MULTIFAMILY AND BUILD-TO-RENT SECTORS

The growing Private Rental (PRS), Multifamily and Build-to-Rent sectors were identified as the environment where off-site construction could have the biggest impact.

This is partly because many developers are tied to an operational ‘brand’ which often involves running a signature design style throughout all of their schemes.

“The PRS brand is about consistency, so it’s perfect for modular and repetition. They are taking advantage of that combination,” said Ladhams. “There is a big opportunity here.”

Iain Murray of LIV Consult, pointed out that off-site construction’s ability to cut the construction time was also a key benefit for PRS providers. “I think the private rented sector is probably the main target [for modular],” he said. “If you can get it up quicker, it means that the income starts earlier.”

Chair: Russell DoughtyBuro Four, Director

alinea Alex Hyams, Associate

Assael Associates Peter Ladhams, Director

Buro Four Colin Bartlett, Director of Residential

ChapmanBDSP Jerry Lehane, Managing Director

Core Five Gerard Cook, Partner

Cundall Peter O’Halloran, Building Services Partner

Darling AssociatesChristopher Darling, Managing Director

DorringtonDuncan Salvesen, Director of Residential

HTA Design Sandy Morrison, Partner

LaSalle Investment ManagementMatthew Forward, Assistant Fund Manager

LIV Consult Iain Murray, Managing Director

QuintainRussel Markou, Operations Director

ROUNDTABLE GUESTS

Our clients are keen to try modular, but they want to know why it will be better than traditional construction. The stumbling blocks they come across are often commercial, rather than technical.

PREFABRICATION, MODULARISATION & INNOVATION BUROFOUR.COM

However, Gerard Cook, a Partner at Core Five, sounded a note of caution. “Regardless of tenure, it won’t work for some clients because they haven’t got the volume and they haven’t got the repetition or consistency of site”, he said. “For example, Central London sites won’t by the nature of their massing.”

SPEED IS KEY

Speed was identified as one of the key benefits of off-site construction. “It is fantastically quicker,” said Sandy Morrison, Partner at HTA Design. “It has taken us a year less to build a modular block at our scheme in Wembley than it did to build a traditionally constructed building of a similar size.”

However, he pointed out that this could actually be a drawback for traditional housebuilders, who are used to having a long construction period which allows them to sell units at a relatively slow pace if necessary. “It works on the private rent guys because they want to get the thing up and rent it, but I still don’t really see how it works from a sales point of view,” he said.

Although it is still quicker overall, the design process makes for a longer lead-in time, particularly if this is the first modular scheme that a developer has undertaken. “There is an additional design time the first time you design that unit, but it’s not repeated on the next project,” Morrison continued.

SKILLS SHORTAGE

Christopher Darling, Managing Director of Darling Associates, pointed out that modular could also help to address the acute skills shortage that the construction industry is currently experiencing. He said that this played a part in the decision of one of his clients, PRS developer Essential Living, to go down the off-site route. “The main contractor market in London is so heated right now that they can circumvent that,” he said.

Peter O’Halloran, Partner at Cundall, added that, because modular construction requires less manpower, the cost could eventually

Russell DoughtyDirectorBuro Four rdoughty@burofour.com+44 (0)7796 336297

become more in line with traditional construction if labour costs rise. “There’s 20% difference now, but with the increase in labour costs we all know it’s going to get very close,” he said.

RISK FACTORS

As with any relatively new methodology, there are clearly risks associated with modular.

One of the most significant is the high upfront cost involved in designing and developing a company’s very first modular product, without any guarantee that it will rent or sell successfully.

Ladhams pointed out that L&G have attempted to control their own costs by investing £50m in their own factory, which could later be converted for another use if necessary, while Doughty pointed to the way in which modular building amplifies the cyclical nature of construction.

“If the elements you are making in a factory are so significant in terms of size and cost, you need to generate a constant workload for the factory,” he said. So if you make kitchens, you might sell them through retail, you might sell them to a housebuilder, you might sell them to a contractor, but the modular manufacturers don’t yet have that breadth of customer base.”

Another risk factor is insurance, where providers have not yet got to grips with the different approach needed when insuring modular products. “The mortgage providers will provide the mortgages for modular products if the insurers will insure it, but at the moment the insurers have got quite a bit of nervousness around it,” said Murray.

This, according to Jerry Lehane, Managing Director of ChapmanBDSP, is symptomatic of a wider stigma around modular construction in general, and misconceptions about what the end product is like. “People seem to think post-war prefab or they see sea containers being stacked together, when actually it’s the same stuff, put together in a factory in a different way,” he said.

MOVING FORWARD

The panel said that the industry needs to galvanise itself if it is to reap the benefits of modular construction. “As an industry we need to force people together and say ‘You need to solve these problems, because if you don’t we can’t build them quick enough,

they’re too expensive and we’ll never make it cheaper to go modular,’ said Murray. “The momentum needs to be gathered.”

“The issue is how damn slow we are in the construction industry to push things on,” Lehane added. “We can get there in years or we can get there in decades. He added that there was a competitive advantage for firms choosing to “jump into bed early.”

The government has made some positive noises where modular is concerned, and Salvesen said that, although the onus is largely on the industry itself, there was one way in which ministers could help out. “The one thing that government could do to help kick-start this, to generate more jobs and deliver houses quicker, is give developers using modular a 10% tax break,” he said.

“You could reduce the price differential between a traditional and a modular build, and then investors would see it as a no-brainer.”

Essentially, the drawbacks of modular are centred on the fact that there are lots of time-consuming and potentially costly hurdles to be overcome at an early stage in the process.

If developers have the expertise, resources and, importantly, the courage in their convictions to manage that, they are maybe on to a winner.

It has taken us a year less to build a modular block at our scheme in Wembley than it did to build a traditionally constructed building of a similar size.

Colin BartlettDirector of ResidentialBuro Four cbartlett@burofour.com+44 (0)7787 503753

People seem to think post-war prefab or they see sea containers being stacked together, when actually it’s the same stuff, put together in a factory in a different way.

BURO FOURProject, Design and Development Managers

1 Naoroji Street, London WC1X 0GBPhone: +44 (0)20 7832 5500

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