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Modular manufacturers must balance scaling with reliable demand pipelines.
According to a report by McKinsey, the modular construction industry is finally starting to deliver on a promise that has lingered for two centuries. Advances in digital technology, automation, and manufacturing are enabling factory-built housing and commercial projects to compete more effectively with traditional methods, addressing challenges ranging from labour shortages to carbon emissions. (main image: Modules manufactured by Modscape for Queensland’s largest modular housing development in Woree. Image credit: Modscape.)
Modular gains momentum
McKinsey’s global database of more than 700 modular companies highlights the scale of this shift. While modular has long been seen as a niche, the research shows the sector is expanding rapidly, with more than 200 new players founded in the past 20 years and over 100 with a track record stretching back half a century.
The analysis points to modular’s ability to lift productivity, reduce on-site labour requirements by up to 40 per cent, and accelerate project delivery times by as much as 50 per cent. It also shows potential for significant carbon reductions, especially where materials such as timber are integrated into efficient factory workflows.
A fragmented but thriving market
The industry remains highly fragmented. According to McKinsey’s dataset, as many as 70 per cent of modular players operate with revenues under €50 million (AUD $83 million), while only a handful exceed €500 million (AUD $830 million). Despite this, the weighted average EBITDA margin across modular companies is 7 per cent—comparable to or higher than many parts of the conventional construction sector.
That margin is not evenly spread. Vertically integrated companies that control design, manufacturing, and assembly perform best, with EBITDA margins of 15 to 20 per cent. By contrast, those focused only on manufacturing average closer to 5 per cent. The difference highlights the importance of value chain control in unlocking modular’s benefits.
Building systems at the core
McKinsey notes that successful players anchor their approach in a strong building system. This means standardising design and manufacturing rules while leaving room for site-specific flexibility. Advances in digital tools such as parametric modelling and integrated BIM-to-factory workflows are making it easier to strike that balance, allowing companies to configure projects at speed without losing efficiency.
Equally important is a cautious approach to scaling. McKinsey’s research points to several high-profile failures linked to premature expansion into new geographies or building types before proving systems locally. Secure demand pipelines, often through partnerships with developers or housing authorities, remain essential before investing in large-scale automated facilities.
Opportunities for all stakeholders
The findings suggest opportunities across the value chain. Developers stand to benefit from faster delivery and more predictable returns. Manufacturers can improve factory utilisation through rental models as well as project-based sales. Contractors, too, are under pressure to adapt, with modular offering pathways to diversify their capabilities. For investors, the lesson is clear: while the market is complex and not without risks, disciplined bets on the right players could yield outsized returns.
McKinsey concludes that modular is still achieving only a fraction of its potential. With demand for housing, healthcare, and infrastructure increasing, the companies that combine robust building systems, full value chain control, and disciplined scaling are most likely to succeed.
Source: McKinsey
