Residential and commercial construction, as well as private spending on home improvements, largely drives demand for the heating and air conditioning industry, notes the report. In 2009, the industry experienced a substantial decline as a result of the housing and construction slump that accompanied the recession. “Although the industry began to recover in 2010, several years of revenue growth was still not enough to offset the early recessionary declines,” said Stephen Morea, IBISWorld industry analyst. IBISWorld estimates that industry revenue slightly dropped by an annual average rate of 0.5 percent in the five years to 2013. However, industry revenue is expected to increase by 1.5 percent to $42.9 billion in 2013.
Since virtually every new structure — residential, commercial, or industrial — requires some form of HVACR equipment, new construction activity has the most significant influence on the industry. New home construction turned the corner in 2010 and significantly increased in 2012 when the number of housing starts jumped by 29.1 percent. Building activity in the private nonresidential or commercial market also improved.
Another major market for the industry is replacement of existing HVACR equipment. Economic conditions, ordinary wear and tear on equipment, a movement toward more energy-efficient equipment, and environmental concerns drive HVACR replacements. “As employment and disposable income increased, consumers had more funds available to invest in home improvements,” said Morea.
A third source of industry demand is from restaurant and food service firms who purchase refrigeration equipment, such as walk-in coolers and refrigerated display cases. This product segment saw lower returns as restaurants postponed investing in new refrigeration units during the recession, says the IBISWorld report. However, as consumer spending improved and people began to dine out again, sales of refrigeration equipment also increased.
Revenue for all key markets in the industry has improved. Over the next five years, sales are projected to return to prerecession levels, driven largely by renewed residential construction activity. A recovery in consumer spending will also drive demand for refrigeration systems in downstream food service industries. Energy-efficiency expectations are also forecast to spark sales.
Publication date: 10/28/2013