Commercial HVAC contractors find themselves squeezed by a combination of low demand in most segments and high costs for supplies. Even as economies reopen, the near-term future for construction remains unclear. The outlook seems somewhat brighter, at least for some segments, but overall activity remains uneven. Contractors say they are prepared to adjust to whatever situation presents itself.
Private nonresidential construction declined 10% year-to-date in February, reports the Associated General Contractors of America (AGC). Commercial construction saw the second biggest drop, falling by 8.4% year-to-date, driven mostly by a 22% drop in retail construction. Office construction fell by 4.7%, and lodging construction saw the biggest drop-off, at 25%. On the plus side, warehouse construction increased by 4.1%.
The situation going forward looks better. The AIA’s Architecture Billings Index (ABI) score climbed to 53.3 in February, an increase of more than eight points from January. The ABI is an economic indicator for nonresidential construction activity. While the AIA cautions that the score tends to move up and down during a recovery, inquiries and the value of new design contracts both grew in February as well. These are considered positive signs for the near future.
While the outlook for projects improves, the costs for those projects continue to rise. AGC members report higher prices for everything from concrete to copper. Commercial HVAC contractors will soon see higher prices for equipment. For example, Trane Technologies’ commercial HVAC business announced a price increase of up to 7.5% on select Trane unitary, applied, and controls equipment, which took place April 9.
Carl Feaser, vice president of construction at HB McClure in Harrisburg, Pennsylvania, said his firm has had to revisit some projects it had already priced out. This is due to the rising costs, not all of which the company can absorb.
“It’s been some interesting conversations,” Feaser said. “It’s creating more juggling upfront to win the projects.”
The firm made some purchases to avoid price increases, but this ties up its cash, Feaser said. Ben Uscilla, co-owner of Highwood Mechanical Contractors in New Haven, Connecticut, also reports a steady increase in prices in the past six months. Uscilla said his firm seeks way to control costs, but often their options are limited by the demands of the clients and general contractors they work with.
“It’s just something that we have to work with,” Uscilla said. “We’re all in this together at this point.”
The good news is both Feaser and Uscilla are seeing more activity. That activity comes from several sectors, including office buildings. In some cases, building owners are preparing for existing occupants to return. Large companies, including Amazon and Google, said they expect many of their workers to return to their offices after Labor Day.
Feaser said he understands the desire of employers to bring employees back together under one roof. How close they sit in that shared space likely will change, he said. That creates new needs for HVAC systems to accommodate a more spread out workforce.
In other cases, the buildings will see new occupants, Uscilla said. This happens during any downturn, Uscilla said. New companies replace old ones and businesses seek new locations for a number of reasons. The pandemic has made IAQ a bigger concern for business when they shop for office space. To attract new occupants, Uscilla said building owners look to HVAC contractors for more filtration, ventilation, and servicing.
Uscilla is fairly optimistic about the outlook for his business in the near-term. New Haven is home to Yale University, which fared better other educational institutions during the pandemic. The university drives a lot of the region’s activity, including a robust health care sector.
“We are, generally speaking, in a solid marketplace that tends to bring new, vibrant businesses because of our proximity to the universities and to New York and Boston,” Uscilla said. “In our little world, we’re going to be OK for a while.”
Feaser also expects plenty of work. The bigger issue is getting enough workers. Staffing has become an issue for HB McClure during the pandemic, as it has been for a wide range of companies. The firm even maxed out the number of workers it gets from temporary employment agencies.
Still, higher prices and a shortness of staff are problems that the company can deal with as long as there is enough work, Feaser said.
“The rest of the year will be good for us,” he said.