CHICAGO — For our annual plumbing and hydronic forecast article, CONTRACTOR interviewed a variety of industry professionals, from association and company presidents to manufacturer representatives and construction industry consultants, to find out what is in store for 2013. And fortunately 2013 seems to be on a bit of an upswing even though a sense of economic uncertainty continues to persist.
Construction industry consultants FMI Corp., Raleigh, N.C., reports that residential construction is taking a turn for the better as home sales improve in some areas, while multifamily is generating increasing interest.
“If there is a high tide coming, it will be in the form of residential construction, which will help bring commercial construction out of the doldrums,” FMI said in its Construction Forecast. “Our forecast for 2013 construction put in place calls for an 8% increase to $892 billion — the largest percentage increase since 2005, but only just returning to 2003 levels of construction in current dollars.”
“Over the past few months we have been hearing from our members that business is picking up in various parts of the country,” said PHCC — National Association President David Dugger. “We’re hopeful that trend will continue in other geographic areas, and that all industry sectors will have a better year in 2013. There have been reports that some of the states that were hit hard by the economic downturn, like California and Florida, are showing signs of improvement. That is good news for the rest of the country.”
Even though this is promising news, Dugger believes construction overall will inch along as it has in 2012, however, early indications from economic experts show an improving residential market in 2013.
“That is extremely good news, as it affects the majority of our members,” said Dugger. “There also are predictions of slight growth on the commercial side.”
There are several industry trends PHCC — National Association is monitoring and addressing.
“A key challenge for our members is determining how to be profitable in uncertain economic times,” said Dugger. “Finding and retaining qualified workers also is on their minds. Also, the use of technology — both in the office and in the field — is growing at a rapid pace, changing the way we are all conducting business. This presents a whole new set of challenges for business owners.”
Promising markets for contractors interested in expanding their business scope include geothermal, solar, radiant and energy efficiency, said Dugger.
Last year, Jack Tester, president and CEO of Nexstar, told Contractor that geothermal installations are growing and will be a strong area of business opportunity for contractors. For 2013 Tester said that geothermal will continue to be a growth market.
“I do not see any significant changes in the trajectory of the market other than continued growth in consumer awareness of this option,” said Tester.
Tester added that Nexstar is seeing continued strong demand and market share growth from members in the residential service/replacement market.
“This will maintain strong residential service/replacement revenue growth in 2013, yet Nexstar’s economic forecasts call for a cooling of the economy in late 2013, which may slow overall growth, but good business operators we believe will have a strong 2013,” said Tester.
According to Brian Beaulieu, Nexstar’s economist, there has been a nice upturn in new home construction such as apartment buildings, single-family homes and condos.
Beaulieu also pointed out that new construction in medical and hospital construction is doing well, along with education construction on the private side, and construction retail is turning around, especially multipurpose retail.
According to FMI Corp.’s Construction Forecast, housing starts are starting to gain real traction, rising to 603,000 units a year as of September 2012, and single-family permits also rose to a 545,000-unit pace, or 6.7%, returning to levels not seen since July 2008.
“The need for housing and reluctance to build or purchase have continued to spur on multifamily construction with starts rising 25.1% percent in September,” the report states. “We are currently forecasting a 23% increase in single-family construction put in place for 2013 to $155 billion, and multifamily construction growth of 31% to $29.4 billion.”
Hydronic market sees distinct trends
Dale Stroud, senior director, marketing and offerings, Uponor Inc., said his firm believes that 2013 will be a better year than 2012 because of macro-economic factors. For example, historically the backlog of unsold homes has hovered at just above 300,000. It is now in the 150,000 range, so, by that measure, supply of available homes is tight.
Annual housing starts, while still well below one million, are trending upward steeply. Architectural billings are up and non-residential construction put-in-place is back up near $300 billion. Employment is up and other general economic trends are all heading in the right direction, Stroud noted.
Another driver is the increasing acceptance of PEX in the residential market. Uponor has tracked PEX sales against housing starts and the relationship is not linear — even as starts fell during the recession, PEX sales have held their own. Adding to Uponor’s optimism are markets whose potential has not yet been realized, such as residential fire sprinklers and pre-insulated PEX for underground applications.
The hydronic heating market is seeing a handful of distinct trends. One is the destruction wrought by Superstorm Sandy in a region of the country heavily served by hydronic systems. Second is the increase in sales of efficient equipment even though fuel prices — especially natural gas — are moderate. And the third is an increase in the use of electronics.
The effect of Sandy will last for a couple of years because shipments depend on just how much damage a structure has incurred, explained Stirling Boston, director of marketing at Lochinvar. Some houses were flooded with a few feet of water so that their appliances, including the boilers, need to be replaced now. Some structures will need gut remodeling so the boilers won’t go in until later in the year and some structures have to be rebuilt from scratch. All heating manufacturers are seeing a spike in sales as a result, Lahti noted.
“We’re optimistic,” said Mike Lahti, vice president sales at Lochinvar Corp. “There is still a lot of upside with the transformation to condensing boilers across the United States. Energy efficiency still on the minds of a lot of consumers and building owners and operators, despite the fact that natural gas pretty low.”
“There are not a lot of great investments out there for people but their houses are good investments,” said Stirling Boston, director of marketing at Lochinvar. “People say if we’re going to be here, we should upgrade the heating system.”
When it comes to technology, it’s all about the user interface. Grundfos Pumps, as a European manufacturer, competes in a market where ECM circulators will be mandated in stages beginning this year and carrying on through 2017. European pump manufacturers are also redesigning the hydraulics of their volutes in addition to using ECM motors. The U.S. market isn’t propelled by those same legislative tailwinds as Europe, noted Kurt Vigil, Grundfos’ business development manager for domestic building services, but the firm is still seeing increased sales here of its Alpha and Magna ECM pumps.
Although the circulator may be high-tech, it can’t be confusing, Vigil said.
“The biggest need is for simplicity where the systems require higher level of technology and innovation but the contractor needs simplicity in the installation, reliability, trouble-free, and not complicated to install or maintain,” Vigil said. “That takes the highest level of innovation and technology.”
The same goes for boilers.
“The user interface has provided ways to simplify troubleshooting, providing aftermarket service and support for contractors by providing the date and time of failure and what it went down on so they can find the conditions that took it down,” Lahti said. “There’s a race to that technology and, as more competitors try to provide that, it will mature like you’ve seen in the iPad and mini iPad. It will enhance the user’s ability to troubleshoot by providing operating information and data-logging that they never had in the past.”
Added Boston, “The customer has come to expect this kind of control and interface. We can dig way down for the installers and service contractors, but even the homeowner can go through the screens to see what it’s doing. A smart system control can tell you if the screen color has changed that it needs service or it’s been locked out.”
Building sectors will slowly improve
David Chisolm, A. O. Smith Marketing Director, noted that company research indicates that there will continue to be slow improvement in most building sectors next year.
“Several major forecasts for 2013, seem to predict that next year’s growth will be similar to that seen in ’12 with some slight improvements on the overall rate of growth from last year,” said Chisolm. “It appears that both the single housing market as well as the commercial construction markets are well positioned to produce growth that may outpace other categories.”
The company is seeing an increase in the demand for more energy efficient products, according to Chisolm, and condensing tankless and high efficiency tank products (condensing, heat pump, solar, etc.) continue to draw interest in key markets.
Each year, Zurn conducts extensive research with its customer and channel partners, and according to Scott E. McDowell, general manager of Commercial Brass and VP of Marketing at Zurn, the research for 2013 looks more positive than previous years due to several data points.
“The residential market is returning, which is a leading indicator to the commercial market; private funding is up 10% year over year, signaling a switch from government projects to private projects (private projects tend to complete on time and request more differentiated product offerings than public sector); and contractor backlogs are increasing from earlier in the year, signaling a greater workload for the commercial contractors in our market,” said McDowell.
According to Zurn research, 2013 is signaling continued growth in healthcare, and new growth in commercial buildings and retail.
“The healthcare market paused late in 2012 to understand the impact of Affordable Care Act, but should see renewed interest after the healthcare providers comprehend the financial impact,” said McDowell. “Commercial buildings and retail are both tied to consumer confidence and spending, which continues to accelerate slowly.”
According to Mark Knurek, director of marketing and product development for Moen’s Commercial Business Unit, as we enter 2013, overall commercial construction is up, but while health care is up to a record level, education is slightly down, office construction is still not back to where it was in the mid-2000s and hospitality is very similar — it’s up a bit, but not nearly where it was six years ago.
“The fundamentals are very strong here in terms of new construction and in a few years it will be approaching all time highs for this [health care] sector,” said Knurek. “We have been investing in new products that meet the needs of this marketplace. For example, hospitals use manual flushometers for the toilets in patient rooms.” Moen just introduced these flushometers for 2013.
FMI Corp. reports that after slowing for the last two years, growth in health care construction to improve to 8% or $44.3 billion in 2013 is expected. The reports also notes that new health care construction will include a growing number of renovation projects to update current facilities for modern hospital design, using more technology in the rooms as well as for improving air quality and reducing energy usage.
Another key trend, according to Knurek, is making patient rooms look more like home, so Moen introduced the availability of a new finish, LifeShine Classic Brushed Nickel,for its line of medium-duty M·Bition lavatory faucets and shower systems. A perfect match to stainless steel accessories commonly found in commercial facilities, the new finish is designed specifically for high-traffic commercial facilities, providing the designer look of classic stainless.
According to Knurek, another sector to watch is education, even though it has been down.
“We don’t see it [education] recovering like health care, we still see it struggling for some years, particular K-12, which is under so much pressure at the state and local levels,” said Knurek. “Universities have held up better, but even now we are seeing some pressure there too.”
FMI Corp. also reports that educational construction has slowed considerably since 2009 due to sharp drops in state funding, and is forecasting a modest 3% growth for 2013 to $85.9 billion.
The commercial remodel and replacement sector has held up during the downturn and will continue to hold up in 2013, noted Knurek.
“About 80% of commercial plumbing fixtures sold arefor remodel and replace,” said Knurek. “This has held up since 2009 and has picked up despite new construction being down.”
Regarding trends, Knurek said it is important to look at the baby-boomer segment.
“Baby boomers are very active and are investing more,” said Knurek. “They are more inclined to go to contractors for upgrades to their home.”
Made in America is also a trend that is driving sales for Moen, along with water conservation.
“We are even seeing WaterSense creep into the commercial side,” said Knurek. “Many of the new faucet, shower and even flush valve products we have recently introduced are certified to WaterSense requirements. Water, especially in certain areas, is really a serious issue.”
Another industry trend to watch, according to Dominic DeCaria, Market Segment Manager – Americas at Lubrizol, is material performance.
“First of all, you want to make sure plumbing systems lasts the lifetime of the home,” explained DeCaria, who has more than eight years of experience working with Lubrizol’s popular FlowGuard Pipe & Fittings. “Energy efficiency is another issue, making sure hot water stays hot, along with value engineering of commercial systems. When developing new projects there are budgets that need to be met and to value engineer a project with a high performance plumbing material that doesn’t cost what other materials costs is a huge way for people to get their projects in line with their budget.”
Regarding residential construction, according to DeCaria, the type of home out there is changing based on the times.
“It used to be the classic, 2,200-sq.ft. home and that is now shifting to multigenerational homes,” said DeCaria. “We are seeing that some people don’t want equity in a house because they don’t want to possibly lose the equity. Some builders have told us of entire communities being dedicated to rental.
According to NAHB’s “The New Home in 2015” study, the average, new single-family detached home in 2015 will be about 2,152 square feet — approximately 11% smaller than the average home built in 2010, noted Chris Peel, senior vice president and COO of Rheem.
“As the real estate market picks up, from an HVAC and water heating perspective, the needs of future new homebuyers will likely change from large 50-gallon storage water heaters to smaller, more efficient models that offer more hot water or even tankless units,” said Peel. “For Rheem, this trend makes innovations like our XR90 water heater, and whole-home systems like our Integrated Heating & Water Heating System viable options for new construction.”
An interesting buying trend that has emerged in the past few years, regarding commercial construction, is the preference for higher efficiency systems that have a strong payback story, noted Peel. In 2012, Rheem added three high-efficiency solutions to meet these demands: the H2AC Rooftop Unit featuring eSync Integration Technology, the 80-gallon SPIDERfire Condensing Commercial Water Heater and the Rheem Prestige Series high efficiency commercial package units.
“When commercial markets start to see more consistent growth, we expect high-efficiency systems to become even more important to customers,” said Peel.
Regarding niche markets, Peel said that Rheem doesn’t consider “green” a niche anymore – it is here to stay.
“The McGraw-Hill SmartMarket Report: ‘New and Remodeled Green Homes,’ released in May 2012, validates this by noting that the green homes share of the construction market – 17% in 2011 – is expected to rise 29% to 38% by 2016,” said Peel.