An ever-evolving market

Diagram 1
Screw chillers are losing market share to Turbocor centrifugal compressors.

How does your perception of the air-conditioning market compare with research findings by David Garwood?

The outlook for the UK economy is one of steep decline, caused by the recent financial turmoil, which has led to a shortage of available credit, weaker public finances and a continued decline in the property market.

Despite the pessimistic outlook for 2009, it is expected that there will be some growth over the next five years. The infrastructure sector is positive with rail, energy and ports projects in the pipeline.

There have been some concerns that the M25 widening might suffer from a shortfall in funding, though it is expected that the Government will step in to provide any extra funding required. Also in the pipeline are investments in the M1, M62 transport hubs — though at this stage it is uncertain. One thing for sure, new transport links always bring in other companies into the area and hence offer other opportunities for growth.

The UK air conditioning market faced a difficult year in 2008. Sales of smaller systems declined as these are more dependent on projects with shorter lead times. In addition, the UK continued to experience a cooler summer as with 2007, compared to previous years.

In 2007 the trend was towards larger chillers being installed for new-build projects. The VRF market continued to complete successfully against chillers at the lower end (less than 350 kW) and the market size grew in both value and volume over 2007.

The first half of 2008 was positive for the chiller market, as this sector traditionally lags six to eight months behind any changes in trends in the construction market. However, following a decline in the economy as whole, chiller sales started to show the effects of the downturn in the economy, and the outlook for 2009 is bleak. There are a few large projects around, but the lack of funding is preventing a number of projects from materialising.

Some air-conditioning manufacturers now have within their portfolio an air-to-water heat pump that can heat water up to 65 to 70°C. This temperature is suitable for heating radiators and domestic hot water. Hence this product is now completing directly with the gas boiler market, albeit from a small base. The market size of this product will increase as soon as more players enter the UK market.

Reflecting on longer-term trends, there have been significant changes in the market for air-conditioning equipment since 2006. In that year sales were driven by both hot weather and construction growth. In 2007 and 2008 the UK experienced much cooler summers, which dented sales of air-conditioning equipment, especially those more heavily reliant on weather patterns such as single splits and mobile units.

Sales of products such as chillers, close-control units, rooftop and variable-refrigerant flow (VRF) systems are more dependent on prevailing construction trends and are more project-led. Generally speaking a buoyant market in large offices favours such systems. As a consequence, central-plant products enjoyed significant sales growth in 2007 and into 2008. Chillers recorded their highest number of sales in 2007 and continued to do well, at least in the first part of 2008.

Demand for air-conditioning equipment persisted in some sectors such as hotels, but finance for projects is increasingly difficult to obtain. The downturn in the economy is causing a swing away from new build towards refurbishment projects, so manufacturers are focusing their sales efforts towards the refurbishment sector. However, even refurbishment is proving hard to finance.

The chiller market grew in volume and value by 19% and 33%, respectively, in 2007. The rise in market size was led by demand from the construction sector, in particular for larger chillers. In 2007 many manufacturers reported strong growth in the market for central plant and packaged products. By volume, 79% was units smaller than 500 kW.

In 2007, the centrifugal sector grew following increased awareness of the Turbocor compressor among consultants (though growth will be limited as the product has a higher capital cost), and shifts in refrigerant from R407C to R410A or R134a.

The VRF sector continues to attack the chiller market at the lower end (smaller than 350 kW), and the screw compressor market continues to face threats from multiple-scroll compressors. The market for reciprocating compressors has declined significantly and is near to vanishing.

The total market for air-handling units (AHUs) declined by volume slightly in 2007 by 3%. The decline in sales is in line with the decline of the variable-air-volume (VAV) terminal unit market in favour of air-to-water systems such as chilled beams.

Not all AHU companies suffered a decline in the market — some enjoyed a significant increase in market share. Some of these companies have lengthy contracts to supply end-user clients for three years or so, therefore cushioning themselves from the effects of the market downturn.

The number of AHUs sold with heat recovery increased significantly in 2007. Suppliers reported a trend away from plate heat exchangers towards run-around coils and thermal wheels (in particular the double-wheel product). There has also been a trend towards more efficient heat recovery.

The fan-coil market bounced back in 2007 to levels last seen in 2003; the value grew by 15% over 2006 to £30.9 million. The trend in the terminal unit market is towards a straight fight between fan coils and active chilled beams. Fan coils can now compete more effectively against chilled beams on an energy efficiency basis due to the introduction of electronically commutated or direct-current motors.

VAV terminal units are set to decline and will become mainly a replacement product. It is expected that chilled beams will take a greater market share of a largely static market.

David Garwood is a market research consultant at BSRIA.

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