INDUSTRY OPINION
REFRAMING THE OFFSITE MARKET
There can be no doubt that the UK’s offsite manufacturing sector has experienced troubled times over the last three years – but why? Cogent Consulting’s Managing Director, Darren Richards, sheds some light on the key reasons behind recent business failures.
1 The offsite manufacturing (OSM) sector in the UK has been hailed as a solution to address critical challenges in the construction industry, such as housing shortages, rising costs, and sustainability goals by offering numerous benefits, including speed, cost efficiency, and quality control by producing building components or entire structures in factory-controlled settings. However, despite its potential, the sector has experienced several notable business failures in the Category 1 3D/volumetric modular sector – albeit operating in the UK’s low-rise residential space – and this warrants further investigation. There have been many disruptors entering the sector with noble aims – not least L&G Modular Homes, ilke Homes and TopHat – pledging to shake-up housebuilding in the UK. High aspirations, deep pockets, and a healthy dose of naivety and
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2 lack of experience in some cases. Combined losses and write-offs by these businesses in the past five years exceeds £500million plus the costs of the ripple effect down the component supply chain, hindered the growth and success of offsite manufacture generally. Never mind the negative social and reputational impact of the sector. Economic uncertainty and market volatility One of the most significant factors contributing to the failure of offsite manufacturing businesses in the low-rise housing sector has been the economic uncertainty brought about by events such as Brexit and the COVID-19 pandemic. The pandemic created disruptions in the supply chain for critical materials used in offsite manufacturing and Brexit has led to increased tariffs, customs delays, and a loss of seamless trade with the EU – a major source of building
materials – leading to project delays, cost overruns, and revenue shortfalls. Post-Brexit restrictions on immigration limited access to skilled labour, which is crucial for both construction and manufacturing roles. The overall economic slowdown resulted in reduced demand for construction projects. With fewer projects in the pipeline, some companies struggled to maintain cash flow and cover their operational costs. High capital investment and cash flow issues Offsite manufacturing requires significant upfront capital investment in factories, machinery, and technology. Many companies underestimated the financial burden associated with maintaining a highly capital-intensive business model that involves substantial capital outlay for advanced machinery, equipment, and robotics, along with the cost
WWW.OFFSITEMAGAZINE.CO.UK | NOVEMBER/DECEMBER 2024