The State of Construction Technology

November 8, 2018

The field of construction technology is rapidly changing and, by extension, the potential for the construction industry on a global level is booming.

Construction technology

The numbers speak for themselves, as the total value of the sector is expected to exceed $10 trillion by 2020. It comes as no surprise, then, that venture capitalists and technology startups are showing a strong interest in construction.

Jll recently published an extensive report on the current state of construction technology, which suggests that a paradigm shift is underway in the industry.

Compared to a year ago, the investment in construction technology has grown by 30 percent and equals to $1.05 billion – keep in mind that 2018 isn’t over yet.

This positive trend for the ConTech industry is evident in the U.S. market. Construction technology startups are those that have managed to attract most investments in the U.S. compared to any other technology-related startup company.

It’s a common secret that the reason behind such an eye-catching hype are the opportunities that the digitization of the sector opens up.

At the moment, construction is one of the least digitized industries. As a matter of fact, only hunting and agriculture are doing worse than construction in the field.

No one can deny that the industry has a very long way to go before we can claim that it has embraced digitization at the level it could. Nevertheless, digital adoption and maturity have lately been set under the spotlight, and we have every reason to be hopeful. Especially after noticing the influx of new tech-savvy players in the industry.

It appears that the combinations of cutting-edge software and revolutionary hardware will be one of the main ways forward for the sector – this is where data comes in to play. Capturing and analyzing data with precision can unlock tremendous possibilities for people who work in construction.

Of course, digitization isn’t the only force that pushes construction forward.

A series of factors, such as the serious skilled labor shortage, the productivity bottlenecks, and the significant cost fluctuations, have troubled the industry in the past. Each problem has been a catalyst for substantial change in construction – resulting in a gradual change the how those in the industry design, collaborate, and build.  

Smart and meaningful investments could turn this situation around and create noteworthy opportunities for construction technology startups and venture capitalists. All they have to do is to monitor the market closely and acquire a deeper understanding of the challenges that the sector battles against on a continuous basis.

What you need to know about construction’s current state

The JLL report does an excellent job in analyzing some of the biggest sources of pain for construction.

In that way, it becomes easier to understand where the industry currently stands, and what should come next in order for the sector to become more efficient and digitized.

Top five reasons pushing the construction industry to digitalization 

Here are the top five points that require the industry’s attention moving forward to the digital era:

1. Decreased productivity

As reported by the U.S. Bureau of Labor Statistics, the productivity of almost every sector in the market has been nearly doubled during the last 25 years.

However, construction isn’t among these sectors. Productivity in construction has actually declined to a substantial extent in the course of the same period.

2. Increased cost of materials

The cost of materials is another troublesome area for the construction industry.

During the last year, its cost has gone up by 5.6 percent, but that’s not all. A new escalation of approximately 5-to-6 percent is anticipated in 2019. Simply put, things are looking a bit pricey.

3. Shortage of skilled labor

Extended project life cycle, substantial delays, and high rework rates are some of the most common repercussions of labor shortage in construction.

2007 was the last time that the industry presented an increase in its skilled personnel. Since then, the sector has experienced a severe drop of 12.9 percent.

4. Intense competition in terms of resources

It goes without saying that this notable shortage crisis has led to more intense competition between the different industry stakeholders in terms of resources.

Compared to the peak of 2007, spending in construction has grown by 23.3 percent. If we try to translate this percentage to numbers, it is expected that $1.8 trillion will be dedicated in spending by the end of this year.

5. Labour wages go up

In the course of 2017, labor wages increased by 4.5 percent in construction. The same number for other market sectors amounts to 2.2 percent. It’s clear that a substantial difference exists, and it becomes much more disturbing if we take into consideration that there has been a 31.2 percent increase in comparison to 2007.

Where ConTech startups should focus

By now, we can see that there is plenty of room for improvement in construction.

Here are three areas of great opportunity for ConTech experts:

The digital transformation of the sector has already begun, and this generates some remarkable opportunities for construction technology startups, as long as they play their cards right.

Software solutions

The use of software tools in the course of a construction project is no longer seen as a nice to have element, but a must-have. This change came after realizing the ways in which they could help in boosting efficiency and minimizing misunderstandings on site.

Real-time collaboration and communication between the numerous project stakeholders is one of the main focal points for software providers in construction. Exchanging updates, feedback, and documents in real-time are of critical importance for the development of building projects and the prevention of costly delays and reworks.

Due to its gravity, that is an area with a lot of potential for ConTech startups, which could see great return on investment (ROI) by improving the connection between the construction site and office. This would gradually lead to shorter project life cycles with better flows of information and less fragmented supply chains.  

In-factory construction

The standardization of the construction process is a topic that continues to attracts attention.

In-factory construction is an integral part of this, as it supports an automated approach and the idea of building based on standardized tools and processes.

Modular construction can help the industry in a number of ways, if we take into account the substantial skills shortage and steadily growing material costs. Undoubtedly, it’s a cost-efficient alternative to the current method of designing, planning, and building in construction.

Blu Homes and Katerra are two encouraging examples of ConTech startups that have in-factory construction as their priorities. Offshore construction is another area where modular building has seen a lot of progress so far and could function as an excellent example for the entire sector.

Data and artificial intelligence

It is no exaggeration to say that data is one of the most valuable assets on the planet right now.

It unlocks a plethora of opportunities and, in the long-term, can lead to a construction industry with fewer budget overruns and delays.

The true power of big data lies on the fact that it can offer guidance both for current and future projects.

Artificial intelligence (AI) is an area with great potential and is largely based on the quality of the captured data. IoT technology and smart hardware are two strong examples to that direction that have already attracted a lot of interest by venture capitalists and tech startups. The automation of the material ordering process and the implementation of self-operated equipment on site is much closer to us than we might think.

As long as the data capturing and tracking techniques continue to improve, more opportunities will emerge in the field soon. SmartEquip, Flux Factory, and Uptake Technologies are some of the most active players in AI in construction today.

Final words

All in all, a year of great opportunity is coming up for construction technology.

The creation and development of an open data-ecosystem has already begun, and being a part of it should be seen as a must by the ambitious ConTech players in the field.

The State of Construction Technology While technology has advanced many industries since it's rise in popularity, the construction industry has not yet reaped the benefits. Learn how the construction industry has fallen behind in the tech era and why construction technology is the way of the future.
Anastasios Koutsogiannis Anastasios Koutsogiannis is Content Marketing Manager at LetsBuild, an end-to-end digital platform for the construction phase.

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