On the commercial side, the pandemic resulted in a lot of vacant buildings. Almost overnight, every company adopted some sort of work-from-home (WFH) policy, and buildings stayed empty for a long period of time.

Fortunately, the HVAC industry weathered the storm and, today, stands even stronger than it did a few years ago.

Some of the biggest trends contractors are seeing is a shift in marketing, consumer confidence/knowledge, and the workforce. In addition, building analytics continue to play an ever-more-important role in HVAC systems, and some commercial manufacturers have begun working directly with building owners, breaking away from the HVAC industry’s traditional three-step distribution system.

Challenges remain for both commercial and residential HVAC contracting markets, including the labor shortage/talent acquisition, the refrigerant transition, how to market, and price increases. But for those who take the time to prepare ahead, seasoned contractors agree that the future of the industry looks bright.

Consumer Confidence

With the ability to educate themselves on HVAC services and equipment constantly at their fingertips, consumers today are more informed than ever. So in the residential market, homeowners are prepared with questions as soon as that technician or sales engineer walks through their door, said Butch Welsch, president of Welsch Heating & Cooling in St. Louis, Missouri, which is celebrating its 129^th anniversary in 2024.

“Things weren't like they were for about two, three years — meaning that all you had to do is knock on the door and you made a sale … people had that discretionary income,” said Julian Scadden, president and CEO of Nexstar Network.

Consumer confidence also poses challenges to the industry.

“The challenge is, if any of your consumers are watching the news, they're unsure of where the economy is going,” Scadden said. “And people rarely replace their systems … maybe every 10 years, so a lot of those systems were already replaced.”

Now the question is how to drum up more business. Customers still need to have HVAC work done, but they are watching their wallets a little more than they were before. So what a contractor has to do is educate homeowners and help them understand why that contractor is worthy of the price.

“And that's going to be an ongoing challenge relative to training and belief in the way that you lead your business,” Scadden said.

MARKETING SHIFT: Contractors have to stay on top of marketing trends and lean on the help associations offer. (Courtesy of Nexstar Network)

Workforce

The labor shortage and acquiring the right talent are top of mind for virtually every contractor, commercial and residential alike.

“The fight for talent is real, and I think it's going to be exacerbated by our economy,” said Barton James, president and CEO of the Air Conditioning Contractors Association (ACCA).

Dale Drent, vice president of service at Baker Group in Des Moines, Iowa, a commercial, industrial, and institutional HVAC company, currently working toward the goal to be recognized as the leader of analytics in the Midwest, said just from a population standpoint, the percentage of people interested in the physical aspects of the job is less and less.

“As time progresses, that will continue to become a bigger issue,” he said. “Having things connected to the internet, being able to do some remote troubleshooting … that technology certainly helps, but you still eventually need the physical technician to go and do some work, and there are fewer and fewer people getting into that the industry of being the person in the service van driving around and fixing machines.”

As a result, there has been an increase in the amount of buildings that use analytics.

“Building analytics are a great tool to increase labor efficiency,” Drent said. “It’s really a one-two punch. Service automation technicians are a pretty rare breed, and it takes a long time to get them trained up, and with the ability to turn them loose independently, they can go out and troubleshoot and use the automation system to fix buildings.”

Welsch said finding that available manpower hasn’t really been an issue in St. Louis until this year. Every market the business serves has been so busy that they’ve had to bring in and train a lot of new apprenticeships. Welsch Heating is unionized, but there hasn’t even been enough talent in the union hall. But Welsch sees a change in philosophy from the public that might aide in the labor shortage.

“For years, it's been that you have to send your kid to college to get a four-year degree, and then their youngsters graduate with some degree, and they're trying to figure out what in the world they’re going to do with it,” Welsch said. “And they've got $120,000 student debt obligation … and those people are looking at what we have to offer in the trades, and there are a lot of people out there who are better off working with their hands.”

WORKFORCE: More people are recognizing what the trades have to offer. (Courtesy of Welsch Heating & Cooling)

And people are catching on. Welsch thinks there will be a huge sway toward the trades.

“The difficulty getting people to join the trades, quite frankly, is the fact that it's work,” he said.

There are really only a couple options if a contractor really can’t outsource any sort of talent: take a victim mentality, or create their own workforce.

“And I would even say that goes beyond your technicians, because a lot of times we hear about technicians and technical training, and that's great, but what are you doing about those other high-turnover positions such as call center?” Scadden said. “Do you see them as the professionals that they are? Do you have professional follow-up on your unclosed visits … Are you preparing a leadership team — because your businesses have grown in the past three years, you've got great revenue — but are you actually stable inside in your processes, and do you have the leaders that you need to get to the next level? Talent acquisition is broad across the organization.”

James said that knowing the business side, having a network and a loyal staff, is so important to not only how a contractor is going to attract talent, but more importantly, how they keep talent.

Price Increases

The HVAC industry has proven itself to be well-positioned enough to handle challenges like the workforce or consumer confidence. Price increases will likely to continue to be a challenge for the industry and may even alter the way contractors hire.

“With the economy, change is coming,” James said. “It's not just going to be a replacement market — we're going to have to leverage talent in a different way. People's borrowing power is going to be limited … and I don't see prices going down. At some point, [consumers] in both residential and commercial are going to look to get more life out of their systems, so that means you're going to have to leverage talent; they’re going to have to be really good at the repair side of things.”

The thing about price increases is they affect everybody. When prices are raised for contractor’s equipment, the prices are also raised for consumers. This has led to an increase in financing, Welsch said.

Due to the broken supply chain, James said a lack of trust has resulted in contractors holding more and more of their own inventory. And it’s only exacerbated by the price increases.

“When you have 10% price increase here and a 10% price increase there — it's not hard for someone to justify getting into the warehouse business … and then the fact that you've got regulatory changes that may make equipment obsolete, and more expensive,” James said.

Marketing

The way that business is done nowadays is just different than it was 50 years ago. Heck, it’s different than it was even a few years ago.

Take marketing, for example. At one point, if a company or product wanted to be known in every household in the U.S., they could advertise on three television networks: ABC, NBC, and CBS.

“And people would know what Tide was and what Crest toothpaste was, but now the opportunities are so vast for the audiences, and it really is a challenge to get to a large number of people,” Welsch said. “And with all the streaming systems, we're racking our brain trying to figure out where the best places are to market to get the most eyeballs and best exposure.”

Someone recently told Scadden, “Google has become the Yellow Pages.”

“There was a time when you had to be in the Yellow Pages; you just couldn't avoid it,” Scadden said. “And now Google really has a lock on marketing, so I think the question is: How can you diversify?”

Manufacturer Involvement

In addition to the change in marketing, the industry has also been experiencing a change in manufacturers’ involvement, specifically in the commercial market.

Obviously, equipment manufacturers are continuing to manufacture equipment — it’s their core business, the same way a contractor’s core business is providing labor. At the same time, some are, more and more, trying to do turnkey projects with building owners.

“We're keeping tabs on it, and it's impacting our equipment buying decisions on the construction side of our business,” Drent said.

Regulations

Welsch is studying up on, paying extra attention to, and has even testified before Congress regarding the final rule from the U.S. Department of Energy (DOE) that requires newly manufactured indoor residential gas furnaces to be at least 95% efficient starting in December 2028. This means that furnaces made after then will have to be condensing models.

“There’s just a lot of things with it that are not right, and we'd hate to see it go through,” Welsch said. “And I worry about the whole increasing desire to go electric from several aspects.”

Drent said he’s paying close attention to the refrigerant changes.

“Refrigerant is a constant moving target with what the EPA is doing, staying ahead of the EPA, upgrading refrigerants and ridding of [refrigerants], and then what's the next refrigerant that they're going to get rid of?” Drent said.

Scadden recommends that contractors spend time with ACCA, taking full advantage of the organization’s knowledge and expertise on regulations and legislations.

“And I'd encourage people to diversify their memberships,” Scadden said. “Whereas Nexstar is a leading practice organization around operations — the blocking and tackling, as I call it — there's others that specialize in regulations and legislation, and I really praise ACCA for the work they do there.”

James would say the same thing. In fact, he really doesn’t want contractors to be studying government regulations at all; he wants them working on their business.

“That's what they pay us to do — fight for them,” James said. “We just need to be part of them, and when we ask you to do something: do it, and when we ask you to build a relationship and maintain relationship with your elected officials: do it, and you have a state association that’s there to support it at the local and the state level. So no, I don't want contractors studying regulations. That's our job.”

Forecast

Over the next five years, what the HVAC industry is currently experiencing is likely to continue. Economically, however, things may get tighter.

“I think we're going to see more of the good and the bad that's come from private equity and consolidation,” James said. “It's one thing in an economy where everybody's kind of able to get ahead, but it's another when the belt gets tighter for people to stand out and be successful.”

While trends will likely be similar and may even increase in their prominence, the industry’s macroeconomics might not necessarily look the same in five years. It’s hard to really predict the economic environment in general, or what the cost to borrow money will be. But, historically, the pendulum always swings, Scadden said.

SAVE MONEY: Over the next five years, contractors need to focus on the money they have set aside. (Courtesy of Nexstar Network)

“I think we should start there, as business owners or people in the industry to just be wise,” Scadden said. “But I think the good news is, even with the macroeconomics, or even the microeconomics changing, we are a needed service, not only for comfort but also for safety, but you cannot rest on those laurels.”

Contactors have to actively work toward the future, whatever it holds.

“So for five years, I would strongly encourage you to focus on the money that you have set aside,” he said. “How is it invested? How much of it is liquid? How much of it can you pull if and when needed? And is it invested in a way that makes sense? Is it more risk? Or is it more conservative? Think about it, evaluate it, have a strong strategy, because that capital will fuel your business growth when you need it.”

Added James, “You’re going to see the cream of the crop rise, and the other ones fall back and flounder. So if they're not part of a group that’s helping them get ahead of those problems that are going to come their way, I suspect they're going to fail.”