Silicon Valley Reshaping Construction Industry
But experts say deeper changes are also necessary for real change.
CHICAGO—A booming economy is always good news for builders, but subsequent increases in construction materials costs and a skilled labor shortage have presented challenges, and in response, Silicon Valley investors are funneling unprecedented levels of cash into construction technology startups’ that can improve efficiency. But the industry also suffers from an overall lack of productivity improvements, and although new start-ups can help, a more profound change in industry culture may be necessary.
“In the construction industry, for whatever reason, we haven’t moved toward consistency,” either in design or components used, Carlos Serra, Chicago-based JLL’s managing director of the Southwest region for project and development services, tells GlobeSt.com. As a consequence, each new project uses different materials, which exacerbates the increases in materials costs. “It’s always going to create inefficiencies.”
According to the newly released JLL research report, “The State of Construction Technology,” in the first half of 2018, venture capital firms invested $1.05 billion in global construction tech startups, a record high. The 2018 investment volume is already up nearly 30% over the 2017 total, and to date, the construction technology sector has found three unicorns—startups now valued at more than $1 billion—in Katerra, Procore Technologies and Uptake Technologies.
Such firms will play a vital role in the future of construction. “We’re always playing catch-up in our industry,” Serra adds, and he feels its time builders rethink their strategies. JLL recognized this opportunity early, and last year brought on Mihir Shah and Yishai Lerner, two Silicon Valley veterans, to launch JLL Spark, a global business that identifies and delivers new technology-driven real estate service offerings, including a $100 million global venture fund.
Menlo Park, CA-based Katerra was founded in 2015, and recently secured $865 million from SoftBank’s Vision Fund. Along with other industry leaders such as Blu Homes and Project Frog, it manufactures building components off-site. Delivering finalized components to construction sites shortens assembly time and helps offset the labor shortage that began because so many workers laid off during the recession never returned.
And although Katerra, like many in off-site construction, does a lot of work for multifamily developers, Serra points out that firms like WeWork, which now play such a vital role in the US office market, have also begun standardizing construction work. “That ultimately is going to be the way forward.”
Cloud-based software can also help rationalize and improve a construction project’s workflow. Of the various strategies that utilize technology, that “is definitely the easiest to implement,” Serra says. Procore Technologies, PlanGrid, Clarizen and Flux Factory are just a few of the companies that utilize cloud capabilities, mobile platforms and dedicated design software that organizes the work of dozens of professionals.
And Uptake Technologies, Flux Factory, SmartEquip and others use big data capabilities and artificial intelligence to help construction teams make more informed business decisions. These methods can extend the life of expensive equipment, reduce worksite risk and automate simple business processes.
And Serra envisions even greater improvements. In perhaps seven years or so, he says new robot technology will allow owners to automatically scan buildings under construction and track in real time every detail of progress, including minute deviations from original plans. The potential impact is huge if additional costs due to change orders can be drastically cut. If such costs shrink from 8% of the total to just 2%, the use of such technology “is going to explode.”
But few of these potential gains will be realized if industry culture does not change, Serra says. Architects and designers, for example, have resisted the use of standardized construction, and too many in the industry are just too comfortable wit the old ways. Therefore, the greatest challenge is not developing the technology, but ensuring it “doesn’t just lie on the side and gather dust.”