Modular construction can address some of the construction industry’s most pressing challenges, including slow construction-productivity growth,1 global labor shortages, housing shortages, and CO2 emissions. Despite the fact that modular has been around for at least 200 years, recent developments in data, technology, and automation are now allowing it to deliver on its promise.
In this article, we offer a fresh perspective on what it takes to succeed in modular. Our insights are based on our database of more than 700 companies operating in the modular construction industry across more than 50 countries, as well as on conversations with industry leaders (see sidebar “Our methodology”).
Overall, our research suggests that companies with a robust building system tend to outperform, that a higher degree of value chain control is correlated with better performance, and that scaling should be focused and strategic.
Modular construction is more relevant than ever
Modular construction is a building method that involves manufacturing components of a structure in an off-site factory and then assembling these partially or fully finished building elements on-site. In this article, our discussion of modular components includes 3D volumetric modules, 2D panels, and bathroom pods but excludes prefabricated elements or precut material (Exhibit 1). We focus on modular construction for buildings (primarily permanent construction) but also include some insights on companies delivering rental modules for temporary buildings.
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A grid shows the types of modular components on a scale of simple to complex and small to large. On the y axis, components that are largely structural are simple, those with limited fixtures are moderately complex, and those that are fully functional with complex features are complex. On the x axis, single-discipline, individual units are small; panels and volumetric units are medium-size; and complete structures are large.
Components that are included in the scope for the modular-construction market are highlighted in blue. These include simple but large components such as steel frames and cross-laminated timber frames; moderately complex and medium to large components such as prefinished panels, rooms, and houses; and all sizes of complex components such as fully serviced and finished single units, walls, rooms, and houses.
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Modular is able to address a number of construction’s most pressing challenges, such as enhancing the sector’s productivity,2 reducing manpower requirements by up to 40 percent,3 accelerating timelines by up to 50 percent, enabling cost savings (if done correctly and at scale),4 and potentially reducing CO2 emissions.5
Recent technological developments and more-tailored solutions are finally allowing modular construction to scale to its potential, leading to enhanced, higher-quality builds as well as a wider variety of building types beyond previously geometrically constrained assets. For instance, new digital platforms are helping connect customers across the ecosystem with suppliers as well as allowing companies to more easily customize and optimize their designs for specific sites.
A fragmented yet thriving modular construction industry
Our database has identified more than 700 companies operating in the modular construction industry. More than 100 of these companies have been in operation for 50 or more years, with more than 200 companies founded in the past 20 years alone, which illustrates the growing importance of modular today. Our analysis indicates the market is highly fragmented, with a few larger players and a long tail of more than 500 players with less than €50 million in revenue (Exhibit 2).
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A bar chart shows fragmentation in modular construction industry by revenue distribution of modular players in millions of euros and by the cumulative number of modular companies. Only 5 to 10% of players have revenues of more than €500 million, compared to the 60 to 70% players that have revenues of less than €50 million.
Extrapolation based on the share of companies with identified revenues of less than €50 million. Based on companies in the database with 2023 financials available and with sales business model only (n = 180).
Source: Modular Construction proprietary database, April 2025
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Many companies operating in modular construction have been successful (that is, showing strong growth or robust profitability). In fact, companies using modular construction for permanent buildings have a weighted average EBITDA of approximately 7 percent, with noticeable variations among companies (Exhibit 3). While several modular companies have increased in size in recent years, with some even starting to scale internationally, there have also been a few notable bankruptcies.
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A bar chart shows the profitability among modular construction companies by EBITDA margin distribution in percent and by the cumulative number of modular companies. EBITDA margin distribution is based on companies in the database with 2023 financials available and with sales business model only (n = 165). Overall, the weighted average EBITDA margin based on revenues was 7.0% for companies with a sales business model.
Source: Modular Construction proprietary database, April 2025
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How the modular industry stacks up
Analyzing modular construction across seven dimensions helps illustrate what success looks like (Exhibit 4).
Value chain presence
Value chain presence refers to the steps in the value chain in which a modular company operates. There are a number of different archetypes that vary in their value chain presence and EBITDA (see sidebar “Archetypes of modular construction companies”). Our database shows that vertically integrated companies yield better margins—for example, companies doing both modular manufacturing and assembly have higher EBITDA margins (averaging about 15 to 20 percent EBITDA) than companies that offered only modular manufacturing (averaging around 5 percent).
Integrated companies tend to yield higher margins because they have more control over process, quality, and speed. Meanwhile, manufacturing and assembly companies likely have the highest EBITDA for three reasons. First, they are able to take on a broader scope. Second, they can organize more efficiently because their teams are specifically trained to cover a broader modular system. And third, they typically have less pass-through of costs to subcontractors.
Building types
Building types refers to the primary focus of a modular company in terms of asset classes. Approximately 60 percent of players operate in the single-family homes segment. However, profitability seems to be higher for companies building more-specialized assets, such as hotels or healthcare facilities (Exhibit 5). This could be explained by the fact that the higher cost per square meter in these buildings means there is higher value for building in a factory environment—as well as because there could be less competition in these segments.
Two horizontal bar charts show the share of companies by building type in percent and EBITDA margin by building type in percent across single family, residential multiunits, hospitality, commercial, and public. Single-family homes make up the highest share of companies at 60%, followed by residential multiunits and commercial buildings at 51%. However, compared with other building types, hospitality buildings have the highest profitability of 19%, while residential buildings and single-family homes have the lowest at 8% each.
Note: Includes companies with a rental model, given all EBITDA ¬figures are greater than the average of 7%.
Footnote 1: One company can do multiple building types. Revenues and EBITDA equally distributed based on whether company does building type; for example, company doing single-family homes and hospitality will have 50% allocated to each building type.
Source: Modular Construction proprietary database, April 2025, expert interviews
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Structural material choice
Structural material choice refers to the main materials leveraged for modules. Globally, steel and timber are the most used structural materials in modular construction. According to our database, approximately 42 percent of players focus on steel as the primary material and 38 percent focus on timber. Concrete is also preferred in some regions, serving as the focus of approximately 11 percent of players). The most profitable companies tend to focus their products on one primary structural material because a focused approach can enable more standardized manufacturing, design, and assembly as well as allow for cost benefits from procuring materials at scale.
Product type
Products developed range from 2D panels to fully finished 3D modules. The vast majority of players produce either 2D panel or 3D volumetric modules, with the market split relatively equally between them. Both the number of companies identified in each segment and their margins are relatively similar across the two product types. According to our database, companies producing 3D volumetric modules have slightly higher margins than those producing 2D panels (8 percent versus 6 percent on average, respectively), indicating that product type choice is not a key driver of margins.
Building complexity
Complexity encompasses both buildings and modules built (from simple structures to more specialized units). The majority of players operating in modular construction are still focused on low- to medium-complexity projects, such as buildings with fewer floors and limited geometric or technical complexity (Exhibit 6). Furthermore, some companies doing lower-complexity work have higher EBITDA margins. One reason for this is that simpler projects allow companies to more fully reap the benefits of modular construction through more standardization (typically less-bespoke features), greater repeatability (systemized process), and a larger share of construction happening in factories.
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Two horizontal bar charts show the share of players by building complexity in percent and the EBITDA margin by building complexity in percent across low, medium, and high complexity. More players are involved in creating lower-complexity modules (52%), which have higher EBITDA margins (19%), compared with medium complexity (35% of players and 14% margin) and high complexity (13% of players and 5% margin).
Source: Modular Construction proprietary database, April 2025
Commercial model
Based on our analysis, there appear to be two primary commercial models in modular, which operate as different markets: first, a project-based sales model for permanent construction, and second, rental models in which companies manufacture and operate fleets of modules that are rented out for temporary purposes (such as barracks for construction sites or buildings to temporarily increase school capacity). The majority of players use a project-based sales model, though profitability in terms of EBITDA is significantly higher for rental models and models that combine both sales and rentals. On this point, companies that combine both sales and rentals are better able to balance production for both markets, therefore increasing utilization of their manufacturing sites.
Geographical presence
Historically, modular construction was largely local. The differences between markets, such as local preferences, building codes, and regulations, meant that few companies were able to expand internationally. And while these challenges are still present today, they are becoming less prevalent because of standardization across countries and regions, with companies now able to serve several markets through longer-distance logistics or factories in different geographies.
That said, the majority of companies in modular still operate in local markets, with more than 60 percent operating in localized markets, according to those in our database. Meanwhile, 20 to 25 percent of companies operate at a regional level, typically with multiple factories or regional exports, while only approximately 15 percent operate at a global scale. Moving forward, major shifts and new technology (such as digitalization of construction codes and requirements), as well as increased collaboration across countries (such as synchronization of requirements and codes among regions), could enable the industry to become more global.
Players have made efforts to globalize the industry primarily to maximize productivity of assets and harness emerging opportunities in new regions. This has been made possible by leveraging automation and digital technologies that make it easier to design and manufacture for several countries. One of the benefits of scaling up production is less exposure to a single, specific market. Markets often enter and exit natural cycles, which means companies are therefore better able to operate and utilize factories.
Recipe for future success
Our research suggests there is no one single recipe for success in modular construction. However, as we analyze the market against the seven dimensions outlined above, we find that successful companies tend to share three common traits: a building system at the core, value chain control, and focused scaling.
A building system at the core
A building system refers to the rules, processes, procedures, and components that make up the construction of a building. This includes the various components that make up the building (such as big building blocks or smaller components), how these components are manufactured or procured, and how they are transported, organized, and assembled on-site. It also includes the rules for how buildings are designed, the degrees of freedom (such as which design changes can and cannot be made), and which types of companies are involved at various steps of the value chain.
Typically, building systems are focused on one structural material, such as timber, concrete, or steel. However, comprehensive building systems are increasingly possible to build and update due to new technologies and digital tools, such as building information modeling and parametric modeling. With these new comprehensive systems, companies can now create 3D product configurators (with rules set by the building system) or digitally integrate between design software and manufacturing sites, making customization easier.
In our view, successful players invest significantly in their building systems. Initially, these players develop a robust and efficient system that allows for systemized production with a sufficient degree of customization. After establishing this baseline, best-in-class players continue to invest in improving the system based on lessons learned from completed projects.
Value chain control
Successful players directly control either most or all of the value chain (or manufacturing and assembly specifically) while partnering closely with players in other parts of the value chain. Companies only involved in manufacturing or uninvolved in early design stages may not reap the full benefits of modular and could remain subscale with low profitability.
In traditional construction, incentives can often be misaligned between different players, which can create inefficiencies and increase risk. However, if one company can serve as a central part of the value chain, it can help align incentives and enable all players to work toward the same objectives.
This is also true for modular construction. Tight collaboration or integration across the entire value chain can help sync processes, create transparency, rapidly handle updates, and align incentives. As an example, to move components to and from the construction site efficiently, there should be a close link between construction companies, subcontractors, and logistics companies—including leveraging digital technologies from design to development to assembly.
Focused scaling
Many recent shortcomings in modular construction are linked to a lack of focused scaling. Companies may build large, automated factories without sufficient demand to fill production lines or scale into new geographies before first establishing themselves in one market.
With this in mind, companies should ensure there is sufficient, stable demand before expanding capacity—and be considerate of payback times. Construction, especially modular, can be capital-intensive, and even a single suboptimal project can jeopardize a company’s success. Therefore, it is important to mitigate risks and be considerate when scaling, and modular companies can build direct connections with real estate players to create secure demand.6
In addition to meeting demand, companies should ensure their building systems, construction processes, and manufacturing processes work on a few projects before scaling to many. This means determining what success looks like in a single building type or geography before moving into another; often, they have significantly different characteristics and requirements.
What does this mean for different stakeholders?
The benefits of modular construction are increasing alongside demand, and players are becoming larger and more sophisticated. Given the modular market is still achieving only a small portion of its potential, there is an opportunity for multiple players to find success.
Stakeholders in the construction value chain—including developers, modular manufacturers, contractors, and investors—can take actions to increase their chances of success. In addition, other players such as design and engineering firms, building materials producers, and distributors can also consider how to play in this quickly evolving sector.
Developers
Modular construction has the potential to improve internal rates of return for developers by delivering faster construction timelines, more-controlled and lower-risk processes, and, if done right, lower costs. Developers can also consider how modular fits into their portfolios and where and how it should be leveraged.
Extracting the benefits of modular construction requires a step-change in planning, design, and execution. Developers considering implementing modular can embed modular practices early on in design stages and consider partnering with modular suppliers for longer-term success.
Modular manufacturers
Increased demand and other enabling factors (such as lower costs of manufacturing automation) are creating significant market opportunities and room for growth for manufacturers. Despite this, it is important to avoid common pitfalls and create a sensible plan for scaling across building types and geographies.
Value chain control will likely remain critical for achieving the benefits of modular throughout the construction process and will also be important for stable, high factory utilization. Players can consider partnerships, value chain expansion, or new go-to-market models to capture this opportunity. Finally, creating a building system that systematizes processes will likely be important to reap the full benefits of modular.
Contractors
With recent advancements enabling better and faster modular construction, and with modular manufacturing companies increasingly expanding internationally, contractors will likely need to up their game. There is a significant opportunity to embrace modular, and entering this segment could provide contractors with a competitive edge as well as new opportunities to build new capabilities. Therefore, they should determine how they plan to participate in modular construction and identify where the industry will be most relevant for their project portfolios—for example, contractors might participate through partnerships or by developing new in-house capabilities.
Investors
In addition to the market potential for modular construction, a number of industry tailwinds could lead to several investment opportunities. However, given that success across opportunities may vary, picking the right bets will be of critical importance. Having a deep understanding of the industry and investment targets is imperative to succeed. Modular has seen an above-average number of bankruptcies and failures compared with other industries, and it can be a challenging market to understand. Therefore, a high-level overview of the industry is particularly important for investors.
Modular construction is gaining traction, with some companies already succeeding. There are growing opportunities for players across the value chain—not only developers, contractors, modular construction companies, and investors but also design and engineering firms, building materials companies, and distributors. The large number of companies and approaches to modular, as well as a few common factors that have caused some companies to fail, mean that it is important to get things right when moving into or growing in the industry.
If done right, modular has the potential to improve many of the challenges that negatively affect construction, as well as broader challenges such as the housing shortage and the energy transition. It will not be easy to succeed, but there are significant opportunities for those that do.
