How startups are driving the transformation of the construction industry

European construction is a $2 trillion market, and also one of most difficult industries to decarbonise. Startups are already driving significant change in the industry — from developing new, climate-positive building materials through to coming up with innovative ways of how to increase the lifespan of older buildings.

This article will look at the significant challenges facing the construction sector and the investment opportunities that are opening up as a result of startup innovation.

My love of buildings and urban planning started when I was very young. My dad used to sneak me into building sites as a child and tell me everything he knew about the construction that was going on around us.

I am still fascinated by construction to this day. In particular, how construction — one of the world’s biggest CO2 emitters — can be digitised, made more efficient and ultimately decarbonised. If we look at GHG emissions, approximately 20% can be attributed to the construction of buildings. In fact, the cement industry alone emits 8% of global CO2 emissions. In addition, construction and demolition waste accounts for up to 40% of municipal waste by volume.

Growing urbanisation means we will be adding eight cities the size of New York every year. However, the sand and gravel required for concrete production are finite resources and their extraction is already causing major environmental problems such as erosion, disappearing beaches, land slippage and water pollution.

Tackling these urgent challenges head on is crucial, and start-ups will play a leading role.

The trends transforming construction

There are a diverse set of trends that will transform the construction industry in the 2020s and 2030s.

CO2 as a driver for change

Construction is facing increasing regulation and rising costs related to CO2, especially in the cement industry. The EU recently announced the launch of a second Emission Trading Scheme (ETS II), which will put a price on fuel emissions from the road transport and buildings sectors. Although some fear that the carbon price will not be sufficient to decarbonise these industries, the construction industry is actively looking for startups to help them increase productivity, reduce costs (e.g. through digitalisation) and decarbonise. This is opening up opportunities for startups in the novel materials, carbon capture, and circular economy space.

Making better use of resources and existing infrastructure

Relatively small operational margins — around 5% at best for Europe’s major construction companies — will come under increased pressure due to rising construction costs. Solutions that help construction firms to reduce material and labour costs and/or create new revenue streams will be in significant demand. It is likely we will see an increased focus on retrofitting existing buildings and infrastructure as costs for new buildings continue to rise, and the risk of stranded assets increases given stricter regulation on energy use and demand from investors for sustainable buildings.

A move towards innovative materials and building data

Convincing a contractor, architect or developer to adopt new approaches and materials in construction can be a challenge. Contractors are often reluctant to give a guarantee if the client decides to use a novel material or approach, and the process of certifying a new material or process takes time. Better material data and best practice examples from the field can help to overcome this barrier.

Early strategic partnerships will grow in importance

Although not without its challenges, getting a strategic partner on board early in the startup’s journey can pave the way to success in the construction industry. However, companies must ensure they have the capabilities to sell and scale independently in the longer term.

Investment opportunities in ConstructionTech

ConstructionTech includes all technologies related to the design, construction, renovation, demolition, and reuse of materials from buildings and the wider built environment.

ConstructionTech is a diverse investment field. As an impact VC, we’re particularly excited about the following areas:

Sustainable materials

To decarbonise construction, we have to rethink building material production — especially concrete — and look to introduce innovative, lower-carbon or even climate-positive materials. A well-known company in this space is Alcemy, which uses AI to enable the creation of low-carbon concrete and cement.

Retrofitting & lifetime extension

To reduce the environmental impacts of the construction industry and avoid stranded assets, increasing the lifespan of existing buildings to ensure they meet current quality and energy efficiency standards must become a priority. Optiml is an innovative company which develops cost-optimised strategies towards net zero for existing buildings.

Modular & offsite construction

Prefabricating modular building components in off-site factories and assembling them on site has remained a niche activity in many markets, including Europe. But this is now changing rapidly. This is good news for the climate since studies have shown that this form of construction can reduce embodied carbon by up to 45%. Notable companies in this space include Gropyus, which has developed a modular building system that is constantly evolving and fully customisable.

Climate Intelligence

Building characteristics such as lifespan and energy efficiency are defined at the building design stage. Software enables architects and project developers to not only understand but also to minimise the carbon footprint of new and existing buildings. Noteworthy companies include EMIDAT, which is using natural language input to provide verified, accurate and up-to-date emission data for the construction industry.

Contact us!

Cutting-edge new technologies and innovative business models will continue to revolutionise the construction industry. Startups that partner with industry early in their journey, and who are nimble and able to adapt to meet the specific needs of the sector, will have the opportunity to shape the future of the construction industry.

Are you building a startup that is looking to reduce the environmental impacts of construction? If so, we’d love to hear from you.

Felix Hilti is an Associate at Ananda Impact Ventures