Research Question: Will the upward cycle in the residential HVAC market continue in 2016 and beyond?
Report Available: Feb. 26, 2016
Blueshift’s initial research shows a strong HVAC market because of major new home builds in the early 2000s coupled with an average 10- to 15-year HVAC replacement cycle. New technologies like variable refrigerant flow and increasing energy efficiency standards could also lead to more replacement unit installations. However, the housing market collapse is approaching the 10-year mark, which may result in the beginning of a slowdown in volume for replacement needs over the next several years. Cost is also a factor in replacement decisions, with some customers trying to further prolong the life of their current system.
- Currently ~85% of HVAC installs are replacements. Replacements should remain at this level as more systems from the housing boom in the early to mid-2000s near their replacement cycles. From 1999 to 2003, approximately 1.6 million new home builds were completed annually. That figure grew to 2 million new builds in 2006, and then fell to approximately 600 thousand builds per year after the housing bubble collapsed. LII’s Q3 performance reflected the HVAC replacement cycle: its residential business grew over 12% to $518 million.
- Variable refrigerant flow (VRF) is a more recent HVAC technology, operating at varying speeds as it allows for greater control and individualization of interior temperatures, while also resulting in energy savings. VRF air conditioners are more popular in Asia and Europe, and the VRF global market is now 50% greater than the chiller-based air conditioner market. The technology is catching on in the U.S., growing 25% annually and is expected to take share from small to medium sized chillers, especially in high-end residential homes.
- Consumers often claim they want high-efficiency HVAC equipment, or even a VRF system, but balk at the cost which can be 50% higher than a traditional system. Instead, HVAC customers typically purchase the system deemed most durable, which is not always the first attribute dealers push, or least expensive. Many homeowners put off purchasing a replacement HVAC due to the cost and instead try to eke out a few more years of life from their current system. Prospective first-time home buyers in coastal geographies are being priced out of their markets and will instead continue to rent, thus will not be making HVAC decisions. Their landlords will likely not be eager to stay ahead of the HVAC replacement cycle.
Will the HVAC market continue to grow stronger over the next several years? Are there any variables that could thwart its growth? Will homeowners begin adopting VRF systems? Which HVAC manufacturers stand to gain or lose the most? To gain insight into the HVAC market, Blueshift will gather data and issue a market research report from independent sources in the following areas: HVAC dealers, HVAC distributors, Supply chain, and Industry specialists.
Companies: Lennox International (LII), Daikin Industries (TYO:6367), Ingersoll-Rand (IR), Johnson Controls (JCI), United Technologies (UTI), Honeywell International (HON), Emerson Electric (EMR)
Research Begins: Feb. 8, 2016