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The demand for prefabricated homes has increased significantly over the last two years in the global market. Government organizations are also pushing the adoption of prefabricated construction practices to overcome the global housing crisis problem. Other factors, including rising traditional construction costs and shortage of labor, are also aiding the shift towards modular construction practices worldwide and the trend is no different in the United Kingdom market.
Over the last three to four years, several big investments have been made in the sector by venture capital and investment banking firms. While selective, the investment is projected to further continue in the market from the short to medium-term perspective. The investment in modular house builders comes on the back of strong products and pipelines. The growing capital infusion in the segment is a clear indication of the future growth prospects of the prefabricated construction industry in the United Kingdom.
Despite the strong growth prospects, some of the prefabricated construction firms are faced with incremental challenges owning to unprecedented inflation levels and lack of land supply linked to the planning process.
During the period, despite the strong demand and pipeline, the firm continued to post significant losses. In June 2023, Ilke Homes was looking to raise another funding round to keep running the operations and deliver modular homes. However, investors pulled the funding due to the rising rate of cash burn at the firm. This decision resulted in an immediate halt in production at the Ilke Homes factory, which subsequently led to the downfall of the once-promising prefabricated home builder in the United Kingdom.
The market conditions, including the funding winter amid the uncertain economic situation, have proven too strong for Ilke Homes to overcome. Notably, cash burn has been a bigger problem that is faced by players across the prefabricated industry landscape. Legal & General, the insurance giant in the United Kingdom, also stopped production at its timber-frame modular housing factory in May 2023. The firm, like Ilke Homes, reported significant losses that led to the decision to cease production.
L&G had originally intended to construct 3,500 homes annually through its facility, but the firm faced challenges in attaining the required level of project volume to realize this goal. TopHat, another leading modular construction firm from the United Kingdom, has reported losses of millions over the last few years.
While falling turnover has contributed to the surge in losses, continued investment in future growth is also a reason behind the pre-tax loss. Established in 2019 with an initial funding infusion of £75 million from Goldman Sachs, TopHat has garnered additional support amounting to £70 million during the present year. Notable investors in this round include Persimmon and Aviva. TopHat is presently in the process of establishing a second modular housing factory in Corby, a move aimed at increasing its production capability from the existing 800 units annually to approximately 4,500 units.
From the short to medium-term perspective, ConsTrack360 expects modular construction firms to keep reporting net losses, owing to higher upfront investment in achieving scalability. The macroeconomic environment, including rising inflation, will also hamper the revenue growth for the players in H2 2023 and H1 2024. Despite this, the long-term outlook of the prefabricated construction industry remains robust in the United Kingdom. Based on ConsTrack360’s estimates, the prefabricated construction market is projected to grow at a compound annual growth rate (CAGR) of 4.9% from 2023 to 2027, during which the output is expected to increase from £12 billion in 2023 to reach £14.6 billion by 2027.
To know more and gain a deeper understanding of the prefabricated construction market in the United Kingdom, click here.
