What if Demand Wasn’t the Problem?
As you have hopefully heard by now, MBI is in the middle of a five-year campaign to help grow the market share for commercial modular construction from its current 2.7% to 5% by 2020. MBI has targeted its marketing and outreach efforts towards architects, owners, developers, and contractors in key markets such as education, healthcare, office space, retail, and multi-family housing. And we will continue to do so.
But I was struck by a comment I heard from several manufacturers are our recent World of Modular conference – “we are slammed and turning away business all the time.” Now maybe this was optimistic posturing on the part of some people, but my sense is that it’s true for many manufacturers. I had another conversation about the massive need for “affordable” multi-family housing. It was suggested that if our industry owned 5% of that market, we couldn’t build it all if every manufacturer did nothing but multifamily housing.
I went back and checked this position with data from the U.S. Census Bureau. The U.S. Census Data reports that the March 2017 annualized rate for units in buildings with five or more units was 385,000. Five percent of this figure is 19,250 units annually. The Census Bureau also reports that the average square footage of a multi-family unit was 1,102 sf in 2015, down from 1,247 the prior year. At 1,200 sf per unit, that’s a total of 23,100,000 sf of multi-family unit production annually. The average modular manufacturer produces about 225,000 sf annually (based on four year average MBI collects for our annual report). But assuming all this data is accurate, we would need 102 factories building nothing but multi-family units to reach our 5% goal in this market just in the US.
To put this in financial terms, Construct Connect Insight (the economic forecasting subscription MBI uses) projects new multi-family construction starts at about $68 billion annually for the US and Canada. Five percent of this market would be $3.4 billion, or 91% of the total North American output for PMC in MBI’s 2016 annual report.
Of MBI’s key markets, Construct Connect projects roughly $150 billion annually in new construction starts. Five percent would be $7.5 billion annually, or double our output.
The challenge for the industry is that while many factories are indeed very busy now, others are not. In fact, some factories that were operational just two years ago are now not operating. This is due in part to the growth markets not aligning well with our existing manufacturing (geographic) footprint and market experience. The industry needs those idled factories producing just to remain even!
When we launched five in five, we did not say our plan was to double the market share for the existing modular companies. We said our goal was to double the market share for the modular industry. What this data tells us is that many more participants (manufacturers and contractors) will need to enter this industry in order to achieve that goal. Is it possible that the demand for modular already exceeds 5% but the supply is lagging?
What do you think?
Started on May 23, 2017 by Tom Hardiman