Construction is one of the largest industries in the world. It is a $10 trillion annual market worldwide, with $1.3 Trillion in the U.S. alone last year. And it is set to get much bigger. A recent PWC study predicts that the global construction industry will grow by 85% by 2030 to $15.5 trillion.
It is a fragmented and complex industry that makes the property industry look innovative at times. These challenges also represent opportunity. Private investments are pouring into the construction tech space, with $1.53 billion dollars of investment in 2018 alone and the majority of funding going to large leaders like Katerra (with $865 million of Series D funding). Collaboration platforms such as Fieldwire, data companies such as Versatile Natures and OpenSpace, and project management companies such as Avvir are the startups attracting funding most recently.
At Corigin, we are both real estate and technology investors. We see first hand how intertwined the construction and real estate industries are. We have been tracking this sector closely and recognize a lot of the challenges lead to issues in technology adoption, leading to fewer companies with the ability to raise large amounts of capital. Nevertheless, innovation and willingness-to-adopt is increasing, it feels like we might be on the cusp of a shift in thinking about technology in the industry similar to what the property industry has been going through these last few years. In order to educate ourselves on the technology landscape we interviewed over sixty experts and startups in this space and built out a comprehensive research report on Construction Tech. We found that innovation is starting to happen in use cases that need it the most, such as real time progress monitoring, staffing, simplifying the supply chain, and build efficiency.
As we see it, there are five exciting verticles in the construction tech space. Here they are ordered by maturity, adoption, and innovation. They are collaboration platforms, IoT and smart devices, autonomous buildings, Next-Gen commerce and data/insights. Our methodology for mapping out this high level trend spectrum is based on investment capital dedicated, crowdedness of the market landscape, and maturity of the clear leaders in each space.
Our research yielded some important insights into what technologies might be set to make the biggest impact in the near future. First, we noticed that application of computer vision is on the rise with evolving affordability of hardware, advancements in deep learning, and availability of data and funding. Computer vision is poised to help tackle the biggest problems throughout the construction value chain, from bettering design to improving operations and generating impactful insights. After talking with around forty startups in this space, we noticed that about half focused on a software product alone while the rest provide a mix of hardware and software. Over 80% of companies developing computer vision applications were working on some aspect of advanced analytics. Due to large amount of development that goes into a computer vision product, technical founders have proved that they are able to raise more capital. Industry expertise, on the other hand, was less relevant with only 14% of Series A and beyond companies having an industry relevant co-founder. We believe that computer vision will eventually have many more use cases such as robotics due to other technological advancements such as modular components recognition and edge processing,
One of the technologies that we were interested in was 3D printing. From the outside it seems like a revolutionary way to reduce labor costs and speed the construction process. With traditional means of construction progressing minimally in the past decades, 3D printing could be one of the most transformative technologies to enhance construction inefficiencies. From our research we learned that there are a number of startups that have advanced the technology after the recent open source movement and the expiration of major patents in 2008. This momentum, along with shifting public and private sector sentiments, is making the adoption of 3D printing technology in construction much more feasible. The Middle East, Europe, and Asia are leading the charge for setting new legislation and investing in innovation.
Currently, 3D printing within construction is focused on concrete. Sixty percent of startups were working on on-site 3D printing while the rest were building off-site 3D printing processes. Although 3D printing is currently primarily used for off-site production and low-income housing, it could eventually be used in every construction project, for both residential and commercial builds. Since labor and material costs are destined to rise while cost of development of 3D printers will eventually fall we see this as a growth market, even if there might need to be a change in regulatory sentiment for that to happen.
Another promising vertical is the materials and equipment marketplaces sector. These growing aggregators will be able to transform three of the industry’s biggest pain points simultaneously: fractured supply/demand, rising costs, and wasted resources. Material marketplaces provide a great opportunity to consolidate an incredibly complicated supply chain. Until now, entrants into this space were stymied by the logistical challenges of heavyweight shipping. However, new companies will be able to capitalize on the tremendous advancements in supply chain technology of the past few years. As supply chain infrastructure advances (from P2P freight and dedicated last-mile-delivery providers), we can expect more successful material marketplaces within the next few years. In addition to the primary market, there will be countless opportunities in the overstock and re-use market of every kind of construction material.
Construction equipment is perhaps the most promising subsector for a marketplace model. Assets typically have a lifespan of between 10 and 25 years and change hands multiple times between contractors, auction houses, and rental companies. It makes sense for a single marketplace to facilitate all those transactions, while storing the history and condition of assets throughout their lifespan. Despite the buzz about peer-to-peer equipment sharing, equipment marketplaces have yet to aggregate the inventory of rental companies. Marketplaces are competing to add value by offering ancillary services like IoT integration, performance forecasting and construction management. Whichever marketplace provides the most value to the rental houses (the main suppliers), utilizes the most relevant data, and is the first to offer dynamic pricing will likely come out on top.
Construction labor remains an enormous underserved population so we expect to see some version of a labor marketplace become prevalent. The demand for skilled labor (frequently cited as the #1 issue facing the construction industry) and the frequent turnover in the industry all point towards more automated staffing models. Add to this the fact that there are over 7,000,000 construction laborers in the US, the market opportunity is huge. Signing up and gathering data on construction laborers poses the biggest challenge, as the population is less internet-connected than white-collar workers. We identified a number of companies creating labor marketplaces employing virtually every conceivable revenue model. The newest companies offer end-to-end services on very specific types of projects, even sharing some of the responsibilities of managing construction.
As companies begin to automate construction and use predictive analytics to inform decisions on everything from design to material procurement, we are excited to see how the newest entrants perform. We strongly believe that 3D printing will make foundational impact in the next few years, computer vision is on its way to being an asset light replacement for automated project management, and marketplaces is an untapped method for easing costs and inefficiencies across all facets of the construction value chain. For a deeper dive on these sub-sectors, and more of our takeaways on how to succeed in this space, please find our research on our Open House, or reach out at [email protected]. A big thank you goes out to all the founders and industry professionals who shared their time and insights with us; our research would not have been possible without your generosity.