Mass Timber Opportunities: When Innovation and Nature Merge

By Steve Borritt and Adnan Siddiqui
Published December 1, 2022 | 4 min read

From timber long houses in Europe to temples in Asia, wood has been a primary construction material in buildings since the Stone Age, with some still standing more than a thousand years later. Today, modern technology and engineering is turning wood into a “new” building material, mass timber, which is set to transform the North American lumber industry.

The changes unfolding showcase a radically different approach to construction on the continent, opening a number of opportunities to build on this momentum and be on the cutting edge of innovation.

Beautiful and resilient, mass timber products are gaining traction as an alternative to steel and concrete amid global efforts to slash greenhouse gas emissions down to zero by 2050. Made from thick layers of wood compressed together with glue or nails, mass timber – sourced from sustainably managed forests – produces significantly less construction waste, reduces the need for carbon-intensive building materials, and is fire resistant.

The 155,000 sq. ft. 10-story Dalston Works apartment building, Google’s new “Landscraper” headquarters in London, and university campus buildings from South Carolina to British Columbia, are just a few examples of the large-scale builds that can be achieved using this material. The 4,000 seat Idaho Central Credit Union Arena, with its sweeping curved roofline, is a stunning landmark design that represents the type of custom architecture that is also possible with mass timber.

Mass timber projects often employ a modular building approach, meaning many of the parts – from different types of panels, configurations, connections and colours – are selected by the client, then built off-site before being assembled on-site. It is a design feature that significantly cuts down construction time and waste.


Growing momentum

For decades, Europe has been at the forefront of this revolution, but growing momentum in the still-nascent North American market is fostering an environment ripe for commercial opportunities. As of September 2022, there are more than 800 mass timber projects in design mode across the United States, according to the wood products council, WoodWorks, and more than 700 under construction or completed. California, Washington, Texas, Oregon, and Massachusetts are leading the way on mass timber projects in the U.S., with a number of other states also embarking on similar projects.

With capacity shortages in North America for mass timber products such as cross-laminated timber (CLT) or glue-laminated timber (glulam), many of the early projects have been fulfilled by European suppliers, economically shipping material from Austria or Germany across the ocean. But now, an increasing number of manufacturers are setting up shop locally. The number of North American mass timber plants has grown to 22 from just 4 in 2016, and consultancy firm Forest Economic Advisors (FEA) forecasts that number could more than double by 2027. We expect to see a combination of domestic incumbent mass timber manufacturers, certain lumber producers, experienced European mass timber manufacturers, and a handful of new ventures to provide new supply via facilities in North America.


A role in the energy transition

As countries around the world set targets to reduce their greenhouse gas emissions in the coming decades, the construction and lumber industries can make meaningful environmental contributions. According to one estimate, concrete, steel, and aluminum, most of which is used in the built environment, account for 23 percent of total global emissions. Industrial processes like cement kilns and metal smelters are a major source of carbon dioxide (CO2) emissions in the U.S., according to the U.S. Environmental Protection Agency (EPA). The construction sector generates enormous waste, with EPA data showing 548 million tons of construction and demolition debris was produced in 2015, 70 percent of which was concrete.

How can using mass timber help? Building with sustainably harvested wood means using a renewable resource that sequesters carbon. Trees take in CO2 from the atmosphere as they grow and store carbon while releasing oxygen. The natural process of carbon absorption during photosynthesis means that carbon is deposited into every part of the tree, where it remains as long as the wood exists and is not burned or decayed. This process makes trees an ideal natural carbon sequestering apparatus. According to WoodWorks, 50 percent of wood is carbon by dry weight, with the actual amount varying depending on the density of the wood species. Every cubic foot of Douglas fir-larch, for example, contains approximately 15 lbs of carbon, the equivalent of 55 lbs of CO2.

In Canada, the department of Natural Resources says maximizing the use of mass timber in the Canadian construction industry could eliminate roughly 0.6 million tonnes of CO2 from the atmosphere by the start of the next decade – the equivalent of removing 125,000 vehicles off the road.


Opportunities at the forefront of change

But the benefits are not only environmental.

The financial opportunities for the lumber sector are enormous as attitudes among stakeholders shift. More architects and designers are now embracing a horizon of new possibilities and more builders and contractors are increasingly receptive to learning how to work with the material.

Given the breadth of the mass timber ecosystem, there are many opportunities to participate in different parts of the business. These include fabrication of and design services for the various components and connections, all the way to working with architects and engineers on fully integrated design and supply solutions. There are also unique opportunities for hybrid design and construction that incorporate wood, steel, and concrete.

This is not to say that barriers no longer exist. While perceptions are clearly shifting, there still remains resistance among some developers, builders, architects, and banks. Outdated building regulations and policies, misconceptions around building with mass timber, and general inertia against change in the construction industry are also hampering development and access to funds and insurance. The nature of manufacturing off-site means that the capital required to procure materials and begin production is often two to three times higher in the beginning than a typical construction project, so draw schedules for projects are comparatively more front-loaded. Moreover, it’s more difficult for lenders to assess when to release new funds using a typical cost-in-place model when a building is being constructed in a factory.

Lenders and developers, however, are beginning to adapt. Europe’s long standing experience with mass timber, along with the projects completed or underway in North America demonstrate that solutions exist and obstacles are surmountable.


Driving more stability for the lumber market

Mass timber typically does not cannibalize existing wood products and instead creates new demand for lumber, with one cubic foot of mass timber requiring 20 to 25 board feet of dimension lumber. Overall, if current adoption patterns continue, some estimates suggest that mass timber could eventually make up as much as 10 percent of the North American lumber supply by 2035.

Lumber markets in North America have historically been very volatile due to a variety of factors impacting the fine balance of supply and demand, from beetle infestations to wildfires to shifts in housing preferences to inflation. Lumber is a true commodity and pricing behaves as such. But engineered wood and mass timber solutions like CLT and glulam are sold more like a consumer product, with more visibility and predictability for revenue. Pursuing a value-added economic model integrating mass timber facilities with sawmills on the supply side and with developers on the demand side is an opportunity to drive more stable returns and improve valuation for lumber producers.

We can see from these trends that the construction landscape is changing and the pieces are finally falling into place. Mass timber is gaining traction in the North American market, with an increasing number of industry stakeholders embracing its possibilities, more projects underway, and more domestic supply coming online.

Importantly, the benefits of mass timber must be coupled with sustainable forestry practices that factor in high forest management standards. Done right, mass timber buildings not only carry environmental and economic advantages, but are a beautiful testament to what can be achieved when innovation and nature merge.

Steve Borritt

Steve Borritt
Managing Director, Global Investment Banking, RBC Capital Markets

Adnan Siddiqui

Adnan Siddiqui
Director, Global Investment Banking, RBC Capital Markets

Building ProductsConstructionEnergy TransitionForestryIndustry Specific Innovations and TechnologyMass Timber