Female architect discussing construction plans with foreman on paper, digital tablet and laptop. Overhead shot.

Combating High Construction Pricing with #PropTech

Between rising costs, dwindling talent pools and looming uncertainty, today’s construction leaders are grappling with some seriously disruptive forces. But a closer look at each of these “disruptions” reveals some serious opportunities, too, as the sector begins to ramp up its technology strategy.

Though still in the early stages of change, the sector’s movement toward tech innovation represents a meaningful cultural shift, considering that it’s traditionally been slower to embrace technology than other industries.

Now, however, industry heavyweights are beginning to meet challenges head-on. Innovation has begun to impact multiple areas of the industry, including workflow management tools to streamline personnel costs and predictive analytics tools to plan for uncertain times ahead.

Such solutions are key in turning the following three common challenges into promising new opportunities.

Opportunity #1: Combating the labor shortage with tech-driven productivity

The construction challenge: The labor shortage in the construction industry marches on, with a recent survey revealing that 69 percent of contractors have a hard time finding qualified talent. The difficulty is understandable, given that the construction labor pool today is 23 percent smaller than it was in 2007.

One result of the sector’s historically low unemployment is that project budgets must be stretched to meet ever-growing hourly wages — making productivity enhancement a top priority. Upping productivity is no small feat, as it’s been largely stagnant for the last 25 years compared with manufacturing productivity, which has nearly doubled over the same period.

The tech-fueled opportunity: A large piece of the productivity puzzle in construction is that the industry is too often bogged down by contract and paper-passing to get work done efficiently. But according to JLL research, industry leaders are finding they can boost productivity by rethinking the role of technology in day-to-day operations, such as making use of programs like online applications that are holistic tools to share documents, communicate between different teams and serve as a central location for everything regarding the project.

These unified communications systems save time on paperwork, streamline communications and produce more efficient workflows and document sharing between multiple team members. Investing in cloud and mobility solutions also helps architects, designers and crew leaders communicate no matter where their works takes them. New technology is also making it safer and faster for people to do their jobs, for example with smart helmets leveraging sensors and cameras to catch potential hazards, and commercial-grade drones reducing both personnel time and guesswork.

Some firms are even further ahead of the tech game and are turning to automated robots to perform building basics like beam construction and bricklaying — a very clear example of reducing human resource needs.

Opportunity #2: Creating efficiencies in the face of soaring materials costs

The construction challenge:
Materials costs have grown by nearly 30 percent over the last dozen years, according to the JLL report cited above. To put that into perspective, $500,000 worth of materials in 2005 would cost nearly $650,000 today, with 10 percent of those costs having grown in the last five years alone. Already in the second quarter of 2017, cement, steel and lumber have seen costs escalate by more than 4 percent — no small challenge considering McKinsey estimates that materials typically account for more than half the total cost of projects.

The tech-fueled opportunity: The advent of building information modeling (BIM), artificial intelligence (AI) and modular construction are enabling firms to make more with less material and less waste. BIM technology, for example, allows architects and developers to reduce waste in both building and in operations. By knowing exactly how much to plan for, they can save on up-front materials costs. AI is also helping firms to optimize materials distribution, while advances in modular construction are also reducing materials waste through recycling, more controlled inventory and enhanced quality control. Finally, more sophisticated materials are also in the works, such as self-healing concrete. Such innovations may not come cheap up-front, but they could contribute to cost savings down the line.

Opportunity #3: Easing worries of overbuilding with more sophisticated planning tools

The construction challenge:
The U.S. economy has grown steadily, quarter-over-quarter, since the Great Recession — and so has the commercial real estate and development industry. With construction pipelines showing no signs of slowing, many industry leaders are beginning to wonder when the next slowdown might occur. At the same time, unknowns surrounding potential tariffs and international trade changes are also adding to a sense of uncertainty.

The tech-fueled opportunity: Planning for different scenarios can mitigate uncertainty — and the better the analytics at hand, the clearer the outlooks become. Planning tools specific to construction activity are becoming more common, from apps that exist specifically to help project managers track complex data sets like capital planning and change management data, to predictive analytics that can help calculate costs and visualize end products of any given development over the long run.

Let’s be clear: JLL’s Chief Economist, Ryan Severino, believes slowdown is unlikely until at least 2019. But high prices are already a challenge today, so these technology solutions are coming not a moment too soon.

An industry poised for change

Construction business dynamics are transforming as we speak as firms increasingly realize the value that technology adoption plays in staying competitive and profitable. Immediate results remain to be seen, but for now, the technology opportunity is knocking — and more and more construction industry leaders are answering the call.

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