According to the Modular Building Institute, there
are approximately 600,000 buildings in the domestic
mobile/modular fleet. Commercial modular units are
generally non-residential factory-built units that are
capable of being transported from one location to another
and are built to meet federal, state, and local codes. There
are basically three types of modular units as defined
by the MBI: mobile offices, relocatable classrooms, and
modular buildings. Mobile offices, also referred to as
trailers, are single– or double-wide factory-built temporary
units that are generally leased on a short-term basis.
Relocatable classrooms are generally single or double
wide units built to serve the educational market. Modular
buildings, on the other hand, are multi-unit (three or more)
factory-built complexes typically leased for longer periods
Mobile offices are utilized in a variety of industries for
construction site, government, corporate, educational,
in-plant, workforce housing, and general commercial
purposes. Mobile offices are often built based on a
standard floor plan with standard features. Section
modulars differ from mobile offices in that they can be
designed and built specifically for the initial end-user.
Historically, section modulars have been used as hospital
and diagnostic healthcare facilities, banks, commercial
office buildings, educational facilities, daycare centers,
and correctional facilities, as well as in a variety of
high-tech, fast-growing industries. The major markets
served by the industry are primarily general office,
healthcare, workforce housing, and retail/commercial.
One of the key drivers to industry growth over past years
has been the workforce accommodations market. This
market centers on energy extraction activities prevalent
in certain regions in North America, specifically Northern
Alberta, Alaska, North Dakota, and Texas. Due to a
decline in oil prices over the last few years, this market a
significantly depressed but has seen some growth over
the past year as oil prices have begun to rebound.
Another key driver to industry growth has been the
healthcare industry. This market has grown significantly
over the past few years and accounted for approximately
two percent of industry revenues in 2017. The units used
in this segment are a bit more specialized given their
Due to the mobile nature of the assets and their
durability and in some cases flexibility, the modular
industry is able to target a number of different end-user
markets. As economic slowdowns occur within various
industry segments, however, there is some ability to
redeploy assets to more active and viable regions and/
or applications as alternative opportunities arise. As units
become larger, more fixed in their installation, and/or
more specialized in their design and construction, some of this flexibility is lost. Competition typically occurs on a
local or regional level due to the need to respond quickly
to customer requirements. The cost of transporting and
installing units as well as variations in state, regional or
local building codes are other factors affecting value.
According to the MBI, in 2017, the average equipment
age was approximately 12 years, with units selling for
approximately 110% of original cost. Over the period from
1997 to 2017, the 21-year average equipment age was
8.5 years, with a mean average selling price of 107% of
original cost. Profitability within the industry is primarily
driven by leasing economics rather than unit sales.
The industry traditionally attempts to recoup the initial
capital investment of a new unit within four years.
Average lease terms have been approximately 24-28
months. Historically, units remain in the lease fleet for
approximately seven to 10 years and have subsequently
sold for approximately the original cost of the unit. Due to
tighter economic conditions, fleets are aging and more
refurbishing/rebuilding of units is being done. This is due
in part to slower of industry growth.
Industry growth is driven by a confluence of
macroeconomic factors. General population shifts and
demographic trends generate the need for temporary
space. Local and state government regulations regarding
classroom space and capacity, as well as the increasing
acceptance of modular classrooms and buildings as
flexible and cost-saving space solutions, are among
the factors driving the growth of the industry. Class size
reduction initiatives tend to bode well for the modular
Industry utilization, while currently at one of its lowest
levels in the last 21 years, has begun to increase modestly
as dealers curtail capital expenditures and reduce fleets
of older, less desirable units. Utilization in 2017 exhibited
an increase of approximately 2.3% as compared to 2016
Some companies have reported utilization rates in the
high 80% range, while others report rates below 50%.
The local economy, geographic markets served, and
equipment composition play major roles in equipment
According to the MBI, the U.S. market for relocatable
buildings exhibited mixed results in 2017. Some regions
and markets appeared to do very well while others
continue to struggle. The educational market appears
to have lost some traction while support structures for
various energy developments exhibited a decline as a
prominent part of the overall industry in 2017.
As the cost to construct new relocatable units increases,
due to higher material and labor costs and increased
building code requirements, some companies have opted
to refurbish older units rather than purchase new units.
The following figure illustrates the 21-year utilization rate
trend of the mobile and modular industry. As can be seen
from the following figure, the growth in utilization has been
minimal over the past five years.
According to the MBI, with nearly one-third of industry
owned assets “on the sideline.” construction of new
units is not anticipated to be material in the near future.
Additionally, more stringent code requirements will
add to the cost of newly constructed units, without a
corresponding increase in rental rates. This will encourage
owners to spend more on refurbishing, which can be
a frame up restoration or variations of upgrades or
replacements of components; or more extensive repairs
to extend the useful lives of existing assets, and to
continue to challenge regulations that unduly limit revenue
generation on their assets. These factors have resulted in
some cases in higher resale values of the more desirable
units. These values are at approximately 107% of original
cost in 2017, which is up slightly from 2016.
Overall, the industry is in a period of modest to limited
growth, the average fleet age is increasing, capital is
being conserved, and demand for idle units is limited.
Recent observations by HGV have been that some
companies are experiencing increases in utilization and
average rental rate as demand continues to increase due
to a growing U.S. economy and infrastructure spending.
Some companies with mixed fleets of modular units and
container units seem to be experiencing more growth
on the container side of their fleet. The improvement in
the price of oil is creating activity in that sector, but its
long-term stability is still in question, with the global supply
of oil exceeding current levels of demand.
Two recent acquisitions by Williams Scotsman, a leader
in the industry, have highlighted the renewed demand
for fleet units. In December 2017, Williams Scotsman
announced the acquisition of Acton Mobile for $235
million and subsequently, in June 2018 announced the
acquisition of Modular Space Corporation for $1.12 billion.
Both of these acquisitions represent significant multiples
and reflect a positive outlook for the industry
This article originally appeared in the Modular Advantage Magazine - Third Quarter 2018 released in September 2018.