Growth in construction impacts on air conditioning
Whichever market sector David Garwood of BSRIA looks at, especially in London, he sees growth in the air-conditioning sector for the next three years.
The outlook for the UK air-conditioning industry is strong. Sales of large commercial products such as chillers and VRF will start to rise in 2016 and remain higher than the volumes seen in 2015 over the next three years up to 2018. Driving this trend is the large amount of construction projects due to be completed in 2016, 2017 and 2018 — especially in London.
It is the rise and fall of completed construction projects which causes the rise and fall of large commercial air-conditioning sales, and this is best measured by the rise and fall of floor-space statistics. London is the main driver for air conditioning and will become even more so over the next three years.
The construction sectors pulling sales will be office new build and refurbishment, hotel new build, high-value residential towers in London and warehouses. The outlook for data centres by completed projects looks positive in 2016 and 2017 as the amount of completed floorspace is likely to rise in 2016 and again in 2017.
The largest market for air-conditioning sales continues to be the office new-build sector. However, changes are afoot; in the last two years, the high-value residential market has started to take share. This is mainly a London trend. This is not just from new-build projects but change of use and conversions. A number of offices and other buildings are being converted to residential, which has been driving the sales of VRF and chillers, as well as fan-coil units.
Sales for high-value residential applications are set to continue, as the number of completed dwellings in residential towers will continue to rise in 2016 to 2018.
The office new-build sector will start to pull sales of large commercial air conditioning in 2016, as a number of projects are due to be completed. These projects were awarded to the construction company in 2013, as confidence in the UK and global economy started to improve after a few dire years. On average it is a 3-year cycle from start to finish for office new-build projects, so these projects are due to be completed this year.
There will, however, be some delays to projects as a number are being redesigned to reduce costs, and the M&E contractor may not have enough engineers to cope with all the work being made available for building services. Thus some of these projects started in 2013 will be completed early 2017.
The level of work coming from the office new-build sector in London is set to remain high over the next three years, as the amount of new orders placed by floor space in each of the years 2013, 2014 and 2015 is on the same level — but twice the amount that was awarded to the construction companies back in 2012.
The office refurbishment sector saw a rise new starts by floorplate in 2014, larger than the amount awarded in 2013 in the new build sector. This sector tends to follow a 2-year cycle on average from start to finish, and the air-conditioning market has already witnessed a pull from this sector following a rise in completed projects by floorspace in 2015 over 2014.
Another sector expected to pull sales is the hotel new-build sector in London. The year 2015 saw a doubling in the amount of floorspace awarded to the construction companies compared with 2014. Thus, these projects are expected to be completed in 2016/2017.
So the next 15 months looks promising for the air-conditioning market. Not only will there be opportunities for sales in the office refurbishment market but the office new-build sector will start to pull sales too. These, together with the hotel new build and high-value residential sector, will pull sales, so BSRIA expects the air-conditioning market to grow significantly over the next 15 months.
Further ahead, it will be mainly the office new-build sector pulling sales so the market will drop off a bit, but the volume of work will still be considerably higher than it was in 2015 and 2014. This is because the level of new starts by floorspace in the office new-build sector in 2013 to 2015 is double that awarded in 2012, and it was construction projects started in 2012 that generated sales of air conditioning in 2015.
There are strong headwinds that could hinder the growth of the air-conditioning market, such as whether the Chinese Economy will experience a hard or soft landing. There is also a lot of uncertainty about the outcome of the EU referendum.
Thus these two factors could have an effect on the amount of new starts in 2016, which will impact the air-conditioning industry more in 2019. Projects currently under construction could also be slowed down or stopped if the outcome of the EU referendum proves to be contentious, but this is not possible to predict.
David Garwood is a market-research consultant with BSRIA.