Piece by piece: Does modular construction stack up?

A live Purpose-Built Student Accommodation (PBSA) project in DD reflects a broader investment theme we have been tracking in our opportunity set: housing demand remains deep, but the scarcity value is increasingly in projects that can actually be delivered. With construction costs observed to have rebased ~10-15% higher from 12 months ago and contractor capacity still constrained, defensible feasibilities and ability to deliver underpin credit selection. In this environment, modular construction has a role in the credit opportunity set, particularly where repeatable design, proven sponsors and appropriate controls improve cost discipline and completion certainty. 

Key insights 

• Modular construction manufactures components such as rooms, bathroom pods and structural modules in factory environments before transporting and assembling them on site. This shifts labour and production off-site and, in global models, can use offshore manufacturing where scale, cost and capability are advantageous. It is already proven offshore: Sweden has high penetration of factory-built housing at around 80% (PrefabAUS), as does Japan and Singapore. 

• Modular is certainly not the answer for every project. It will be best suited where the product repeats: PBSA, BTR, hotels, worker accommodation and affordable housing. These assets have standardised rooms, repeated services and limited need for purchaser customisation, which is where factory production has the best chance of improving delivery. 

• The attraction is time and cost, Urbis estimates modern methods of construction can reduce build times by 20-50% and lower costs by around 20% at scale. For secured lenders, the benefit is more efficient project delivery and less exposure to potential labour shortages, weather delays and market risk. 

• The key underwriting to understand is that risk is transferred, not removed. Modular reduces some site risk, but increases the importance of design freeze, factory capacity, QA, supplier solvency, offshore jurisdiction, FX, shipping, customs, certification and transit insurance. The diligence needs to follow the asset before it reaches site. 

• The PBSA project in DD has the characteristics where modular can make sense. The asset combines repeatable PBSA design, strong student demand and a tight Adelaide CBD rental market, supported by the University of Adelaide / UniSA merger and a limited competing supply pipeline. The Sponsor / Builder relationship is also known to us through a 2023 residential project that successfully repaid last year. While key diligence work is ongoing, there’s strong indication of factory capability, supplier track record, prototype sign-off, certifications, contingency funds, insurance gaps and fallback completion pathways. 

The investment relevance is not modular construction in isolation, but what it says about the current market: delivery certainty has become increasingly valuable as construction costs, funding costs and contractor capacity remain under pressure. That is consistent with how we are positioning the Fund: diversified exposure across real-asset backed credit where downside protection comes from security, sponsor quality and structuring, not reliance on a single sector theme.