With shrinking budgets and recession affecting construction starts through the beginning of this year, commercial modular construction markets are still outperforming traditional sectors. Well know for speed-to-completion and insulation from high labor costs, the industry seems to be providing particular benefits in a tough economy. Using off-site construction, owners can realize return on investment quicker, gain more immediate cash flow, as well as reap the benefit of a stable labor pool and costs.

Each year the Modular Building Institute (MBI) and R.W. Baird conduct an industry survey that looks in detail at the sectors of the commercial modular construction market. General trends indicate that:

* Forecasted manufacturer revenue continues to increase, although at less accelerated pace
* Manufacturers’ responses indicated a steady increase in production compared to the previous year
* Thirty-five percent of manufacturers reported lead times of four weeks or less in the latest quarterly survey
* Raw materials inflation was essentially flat for the year
* Approximately thirty seven percent (37%) of all floors produced are for permanent modular buildings
* For dealers, leasing revenue growth continues to be a strong point for the industry, with double digit growth rates reported in each quarter
* Dealers remain optimistic about leasing revenue growth, suggesting a ten percent increase for the year

Three market sectors, in particular, point to continued health and vitality of the commercial modular industry, not only in the United States, but also Canada:

K-12 Education. As class sizes reduce, the demand for additional class space increases. This has been particularly true in high population growth areas. According to the United States Department of Education's National Center for Education Statistics, total elementary and secondary enrollment in public and private schools is expected to increase overall by 9 percent per year between 2004 and 2016, with pre-k through eighth grade enrollment expected to increase by 11 percent and ninth through twelfth grade expected to increase by 4 percent. Since 30% of the commercial modular industry is in the education market, school funding has a critical impact on business. Steady or increased funding levels to repair or replace aging infrastructure have a mostly positive impact on the industry, while decreases in funding create uncertainty and delay construction expansions.

Currently, more than 40 states have class size reduction initiatives in place, but many are struggling to find the additional classroom space that meets their ideal student-to-teacher ratio. Some administrators have needs so immediate that they can't wait out the time necessary to build a new school or expand an existing one. Other school districts don't have the necessary funding for new site-built construction. Add to that the need to keep students in class while additional space is added, and it's clear why education has become such a significant commercial modular market segment.

Military Construction Projects. The U.S. Army Corps of Engineers (USACE) has been tasked to find ways to streamline its acquisition and construction processes in order to reduce costs and speed up overall delivery of projects, while at the same time providing quality facilities. The Army is effectively requiring a minimum 15% reduction in cost along with a minimum 20% reduction in time to occupancy. In response to these new requirements, USACE created eight Centers of Standardization (COS) that are not only the design centers of expertise but also will become the acquisition experts for the facility types for which the COS is assigned. Forty-one facility types were identified for standardization. Standardized products and process are advantageous to the industry.

Workforce Housing. Alberta is sitting on one of the largest proven oil reserves in the world with an estimated 174 billion barrels in reserves, second only to Saudi Arabia. Mining these vast quantities of reserves requires massive resources and infrastructure support. Given that much of this work is occurring in Northern Alberta near Ft. McMurray, entire workforce housing camps and villages are being constructed. Manufacturers in this region have reported lead times well in excess of twelve months and in many cases as long as twenty-four months. In other words, the manufacturers in the area have a very long project pipeline and it is currently full.

To get an indication of the magnitude and impact of the oil sands projects, MBI spoke to representatives from Alberta Municipal Affairs. In late 2006, it was stated that there were around 40 to 50 manufacturers in the province of Alberta at that time, with a tremendous amount of pressure to build new units. Due to the lack of skilled labor, manufacturers were looking for outside help to get units constructed. "It looks like this trend will continue for at least five to ten more years."