Forecast: Almost no clouds on sunny hvac horizon

May 15, 2000
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As we say goodbye to the 20th century, shipments of residential-light commercial heating-cooling equipment are at an all-time high, and there is no sign that the trend will be interrupted in the next 12 months.

All of the economic signs are favorable. Inflation is low, employment is high, growth in the gross domestic product is steady, and interest rates are moderate.

And residential construction — while forecast to dip slightly in the next few years — is still at a very high level.

Add to this the robust equipment replacement market, and you get a picture of virtually uninterrupted growth in the near term.

Replacement stock

The nation’s base of 100 million housing units (two-thirds of them single family) and 5 million nonresidential buildings offers a very lucrative market for replacement and service.

Add to that the base of 35,000 supermarkets and more than 100,000 convenience stores, all of which contain a variety of commercial refrigeration equipment.

We are at the end of a half-century of constructing buildings containing an ever-higher saturation of heating-cooling equipment. Fifty years ago, there were 46 million homes in the country. That number has doubled. This ensures a predictable — and growing — market.

Today, new homes built without central air conditioning are in the minority. More than 80% of them come with high-efficiency condensing units.

Massive market of replacements

That means a build-up of about 50 million homes with condensing units of varying ages. This is a high-margin market for hvac contractors, who can get in and out with a replacement system and not have to concern themselves with extensive ductwork and controls.

It’s also a market that lends itself to “selling up” with humidifiers, air cleaners, and smarter thermostats. However, service of this market requires technicians able to do the work. Their dwindling numbers is a cause for concern within the industry.

Much of this is reflected in the new forecast by the Gas Appliance Manufacturers Association (GAMA), which shows uninterrupted growth for most types of residential heating equipment.

The group has a forecast in the high, average, and low range. Here we present the average number.

The largest volume category, gas warm-air furnaces, is now at the 3 million level, and is expected to reach 3.2 million by 2002. The high forecast is even more extravagant, taking shipments to just under 3.4 million by 2003. Cast iron gas boiler shipments will also increase by about 6%.

By contrast, oil warm-air furnaces, reflecting that fuel’s diminished market share, are seen declining by 1% in the near term. Cast iron oil boilers are also seen declining about 1%.

Shipments of lower-volume equipment, like vented wall furnaces, will decline even in the most optimistic scenarios.

Unitary forecast

Unitary products, including heat pumps, are on a decade-long growth pattern, which has seen shipments of nearly 50 million products. This year’s projected 6.3 million units add up to another record performance.

Some industry observers see another 4% to 6% growth in these compressor-bearing units, assuming a normal hot summer and continued new house construction.

A related product, room air conditioners, had a banner year, with shipments of more than 6 million in 1999, an all-time record. This impulse purchase item reflects the extended heat wave experienced in much of the northern and eastern regions.

As more homes are built with central cooling, the room unit market share will continue to decrease, but this is still a significant factor in the residential cooling market.

Compressor shipments during the past decade, which totaled more than 286 million units, have also seen a steady upward pattern. This figure includes both oem sales and replacement sales.

An enormous service market has fueled this growth across all markets: residential, commercial, and institutional.

The building picture

Equipment shipments are also a reflection of the construction of buildings into which the systems are installed. Here, too, the near-term prospects are good.

In macro terms, construction as a percentage of gross domestic product remains at 10%, with no disruption anticipated.

The year ended with new housing construction at just over 2 million units (including mobile homes). That number is expected to dip by about 2% in 2000, with a rebound in the subsequent years.

Single-family construction put in place last year was an estimated $209 billion, up 11%, and expected to be matched next year.

As detailed by FMI, the Denver-based consulting company, in most categories of nonresidential construction, the trend continues strong. Education, hotels-motels, offices, and retail buildings are seen as strong in the out-years. The value of privately owned office construction is exceptionally strong at just under $50 billion, and will grow another 2% next year.

The value of residential improvements, including hvac, plumbing, and electrical, was at a record $83.4 billion in 1999, and will match or exceed that next year.

As a subset of this, metropolitan-area office vacancy rates have fallen up to 9% in the past two years.

One of the big stars in construction is the hotel-motel sector, which is on a seven-year explosion. The value of hotel construction topped $14 billion in 1999, and will hit $16 billion next year.

School work

Another steady-growth sector is educational construction, which is on a 15-year “up” pattern. The 1999 performance of $37 billion will grow by another 4 billion next year.

This is fueled by three factors:

1. Widespread overcrowding;

2. Rapidly increasing enrollment; and

3. The strong need for renovation and repair.

How much enrollment? The Department of Education estimates a record 52.7 million students were enrolled in K-12 schools. This school population will rise through 2007, topping out at 54.3 million students — a pattern that will go well into the new century.

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