ConTech: Can it save CRE from rising contruction costs?
Investors are pouring funding into construction technology startups at a record pace, with big implications for the real estate industry.
Venture capitalists invested US$1.05 billion in construction technology-focused startups in the first half of 2018—a record high. That’s 30 percent more than the 2017 total, with six months still remaining in the year, according to recent research from JLL.
“The construction sector is on the verge of major disruption—for the better,” says Todd Burns, President of Project and Development Services, JLL. “New technologies will boost productivity, reducing the time and cost of construction.”
Technology like InSite, a 3D walk-through tool incubated within JLL, can shorten project cycles and cut costs by 35 percent, Burns says.
Reducing construction costs would be no small victory. They rose 5.6 percent in the 12 months from Q1 2017 to Q1 2018 and JLL forecasts an additional increase of five to six percent by Q1 2019.
The cost of labor is a major piece of that puzzle, says Burns. “We’re seeing a major labor shortage – the number of construction workers has decreased by 12.9 percent from 2007, causing wages to jump by 31.2 percent.”
Any technology that can offset expenses by improving productivity and efficiency peaks the interest of investors, from broad-scale tech funders to real estate venture capital firms, he says.
By far the biggest three areas attracting investor interest are:
- Collaboration software: Dozens of people often work on the same construction project at the same time. Leveraging cloud-based software can improve collaboration. Startups like Procore Technologies (US$180.2 million in funding) and PlanGrid (US$66 million) are offering project teams ways to share plans and markups in real time.
- Offsite construction: Faster assembly and more centralized production can help offset the labor pinch and rising costs. Startups like Katerra (US$1.1 billion) and Blu Homes (US$179.5 million) are fabricating building components in a manufacturing setting, which are then sent to the site.
- Big data and artificial intelligence: Armed with data-driven insights, construction teams can make better informed business decisions. Major startups attracting investor interest in the predictive data space include Uptake Technologies (US$287 million) and Flux Factory (US$39.1 million).
Investors should eye these opportunities with optimism, because they have the power to push back against prohibitive costs and allow commercial real estate projects to move forward. But not all ConTech is created equal.
“Investors should carefully review of the myriad of technologies that are gaining market share and evaluate their potential for disrupting an industry that has long needed some change,” Burns says.