BSRIA showcases insight into the latest global HVAC trendsMarch 2022

BSRIA held a market intelligence webinar on 9th February to showcase insight into the latest global heating, ventilation, and air conditioning market trends, in lieu of its usual attendance at the AHR Expo in Las Vegas.

Head of BSRIA Worldwide Market Intelligence, Anette Meyer Holley, began the webinar by setting the scene.

Globally, the HVAC market was in recovery from COVID in 2021 and is set to reach some $216 Bill in 2021. Air conditioning: residential and commercial markets as well as hydronic heat pumps saw the highest recovery rates with double digit growth, with heat pumps being the only market seeing sustained growth. Globally, the view is that we are moving from a pandemic to an endemic with focus on economic recovery.

However, economic indicators are that due to prolonged uncertainty around COVID, the full extent of the recovery will be slightly delayed into the second quarter of 2022. Whilst the drive for net zero targets in buildings will continue to push renewables and energy efficient products and solutions, the speed of change is regional; in the US it is down to individual States pushing and reinforcing the agenda, with the East and West Coasts being in the forefront of adopting the energy codes set to push the Government agenda to reach an energy carbon neutral economy by 2050.

Of course, COVID has also impacted the way we live, shop, and work, and some of these changes will be permanent. Whilst we have seen negative impacts on offices, hospitality, leisure, and the retail high street, other sectors such as data centres and warehousing have benefitted, but we are also seeing a significant boost in the manufacturing and health care sectors. The pandemic has put greater emphasis on indoor air quality (IAQ) to entice people back to work/schools etc and this, combined with the focus on energy efficiency and carbon neutral buildings, is really pushing digitalisation.

The challenges the industry continue to face are rising energy and material costs, shortage of semi-conductors, logistical problems, as well as the ongoing concern with attracting young people into the industry resulting in a shortage in qualified labour. Added costs means that generally we will see increases in pricing levels across the industry, but the price increases will also partly be driven by higher sales on more energy efficient and high-tech products and solutions.

Socrates Christidis, WMI’s Heating and Renewables Research Manager, continued with a presentation on the trends in heating and renewables, considering the urgency to address climate change raised by the COP 26 conference in Glasgow, along with global carbon neutrality targets.

Some of the challenges to move from traditional heavier carbon solutions to renewables are significantly driven by funding and international energy prices, whether it is related to energy taxation and the move to greener energy, or incentives to encourage a switch to renewables, such as heat pumps. However, on the residential side, it is also worth noting that some 99% of the housing stock are existing buildings, so the focus for change needs to be for solutions in existing buildings and not just new homes to push the agenda forward.

The overall estimated market sizes for heating and (hydronic) heat pumps for 2021 were presented; with Europe representing the biggest market with 11 million units and still dominated by gas boilers, as in China, whereas furnaces typically installed with ducted splits dominate in the US.

Figure 1 World Residential heating markets, vol, 2021

Socrates then presented the likely outlook for key product areas and introduced BSRIA’s recently published study on HVAC 2030  looking at the potential future winning and losing technologies in residential heating in the US, Europe and China. The study is based on 2 scenarios – conservative and progressive – and based on desk research looking at predictors and disrupters, modelling BSRIA’s vast historical data and primary research with industry experts.

Despite the focus on pushing renewables, it is difficult to change traditional habits quickly and policies and regulations not enough to change the market. Hydronic Heat pumps continued to grow during the pandemic and will continue to see high growth rates, whilst the demand for traditional boilers will start to see a negative growth over the next few years. The US is expected to see growth rate of HPs of 42% between 2021-2026, compared to 30% in China and 20% in Europe, but note this is from a very small base. Beyond to 2030 in the progressive scenario; heat pumps will still continue to grow, but furnaces will still be around as a technology; even as a back-up but there is also expected to be a continued shift to air to air HPs in ducted and ductless splits.

In Europe expectations are that as legislation tightens the move away from oil and gas will continue and we will see a faster penetration of a-w HPs in both new and replacement applications, with air to air HPs replacing direct electric heating.

The Chinese market is highly policy driven, but there is a clear move away from coal to gas. Developments are likely to be very regional depending on energy polices and availability. Whilst we expect all HP types to grow; the drive to use gas also means that the market for boilers is expected to continue to grow.

Saziye Dickson; Research Manager of VAC&R, went on to look at the global AC market and presented insights into BSRIA’s latest report on US Indoor Air Quality, which will be followed by a European study later this year. The focus on IAQ following the pandemic has meant 25-35% growth rates are expected from 2020-2025 for IAQ controls, MERV 13+ and UV-C solutions.

The air conditioning market is expected to see a double-digit growth rate of between 16-17% by value in 2021 globally for most of the key residential products, apart from windows and moveables, which was just 3%. In the commercial segment, which of course was hit by changes in the way we worked and shopped during the pandemic, the picture was more of a mixed bag and heavily influenced by the major markets; the US and China. Hence the rooftop market in the US saw good growth of 25% whereas maxi VRF growth was at a much lower level than mini-VRF at just 8% vs 16% due to the impact on retail, offices, hotel, and leisure. Chiller markets also saw double digit growth.

Saziye then reviewed the growth between 2018-2021 for each of the key regions. For the Americas the trend is dominated by the US, which faired well and was stimulated by Federal Government stimulus packages with focus on IAQ and energy efficiency, recording a 19% growth in 2021 in the light commercial sector, and 8-9% in the residential and commercial sectors.

In Asia, China moved to more normal market conditions earlier than the rest of the region and although growth rates are not what we have seen in the past; 2021 saw a recovery which meant that the region reached pre-pandemic regions in 202, with growth rates of 7-9%. The highest growth was in the residential sector driven by replacement, home working and a drive to high efficiency units.

In EMEA the commercial markets are taking longer to recover and not expected to reach pre-pandemic levels until 2023.However, the residential and light commercial markets recovered well in 2021 with growth of 14% and 17% respectively as replacement is pushing sales and the demand from Northern Europe and markets with a lower residential penetration have been rising.

The increasing demand for energy efficiency means that the penetration of inverters in splits has now reached 82% in Europe and 76% in Asia Pacific for splits but still remains relatively low at 30% in the Americas. Chiller penetration of inverters is lower at 40% in Europe. In terms of heat pumps; the trend is towards installing heat pumps as a bivalent system. Whereas heat pumps were previously widely mainly adopted in scroll chillers; they are now being adopted in larger screw and centrifugal chillers with the highest penetration in Asia Pacific with 70%, 40% in Europe but just 5% in the Americas.

R32 is now widely used in single splits and by 2025 85% of units are expected to be supplied with R32 in Europe. The progress will be much slower in the Americas where R410 will continue to dominate with R32 estimated to account for just 20% by 2025.However, there are also moves towards R290, as R32 is not viewed as a long-term solution and this refrigerant is increasingly favoured by the Chinese manufacturers. For chillers it is more of a mixed picture with scroll chillers moving away from R410A to R32, R134A and R513A expected to combined account for a third of scroll chillers in the Americas by 2025. For screw and centrifugal chillers the move away from R134A will reflect more of a mixed picture in terms of refrigerants, but there is a clear move to R1234ze and zd.

The presentation was wrapped up by presented the increasing move from HVAC suppliers to set up regional production points in order to ease material and logistical problems; a trend that was already happening, but has been reinforced by the mismatch in supply and demand during the pandemic.

Fig 2 Global Opportunities for growth in AC, CAGR by volume, 2020-2025

The final presentation focused on Building Controls and Smart buildings in the commercial segment and was presented by Lone Hansen, Senior Manager for IT Cabling, BACS & Associated Technologies. Lone pointed out that the definition of a smart building is one that connects technologies and automates processes to improve their performance; and that the buildings continuously learn, adapt, and respond. However, overall, only 1-2% of commercial buildings deploy truly cutting edge smart technologies with fully integrated products and services; some 10% have several integrated smart technologies; whilst 40% have some level of smartness.

When looking at the US market and the individual uptake of services in smart buildings the largest number of connections are for surveillance cameras but with a modest growth of around 7%. AV and access controls are expected to see the highest growth rates to 2025 of between 16% and 20%. IP sensors are also expected to see healthy growth but from a very base, whilst the growth in BMS and HVAC controllers will be more modest.

The pandemic pushed the need to control the indoor environment and has further driven stand alone solutions that are also suitable for smaller buildings to incorporate things like fresh air, smart lighting, access controls and measure room occupancy and site management solutions.

Overall, the global BACS market recovered in 2021 but saw a modest 4% growth and a market value of $5.4 Bill. The growth in the US was relatively modest, with the highest growth expectations in Germany, Netherlands, Mexico and South East Asia, with Singapore leading the way.

The US BACS market including software, hardware, controllers and field devices is estimated at $1.77 billion in 2021; which saw a bounce back of 4% growth compared to -5% in 2020. Like the rest of the industry the market was hit by supply chain issues, which restricted growth.

Figure 3 US BACS Market Growth, by value

Some of the key factors affecting the industry was the fact that many people continued to work from home, or at least as a hybrid solution. However, it did not become the norm and a chart from some key cities around the world highlighted that the work from home policy in key cities did not really change that much and varied between 5-16% in Europe; and was generally lower in North America and Asia Pacific. This was partly as working from home only generally applied to key services such as professional services, information, and communication sectors, whereas for others it was much lower. Nevertheless, the trend is expected to continue to develop over the next decade as the shortage of staff means that there will be more pressure on employers to offer flexible working when possible. This is likely to impact the office sector which will look to downsize or look for flexible office space.

There is no doubt that the pandemic has given a boost to technology; telehealth for example has gone up 38% in the US and we have seen a boost in Automation and AI to narrow the gap between GDP growth and office employment. However, there is pressure on large public companies to be in the forefront and demonstrate their commitment to net zero and energy efficiency targets and 20% of the worlds largest 2000 companies have made this commitment. Another example is the target for net-zero emissions by 2045 in 300,000 Federal buildings. This in turn also puts pressure on the supply chain, which needs to commit to similar targets to be an approved supplier.

Increasing use of technology also enables the potential for cyberattacks, which have increased 150% in the US, and smart buildings can be a paradise for hackers to steal information, control systems, and cripple entire networks. Although most large organisations have IT policies and procedures, many companies have not comprehensively addressed security issues around their operational technology (OT) infrastructure.

Security covers design, installation, protection, updates of software, traffic encryption and monitoring, passwords etc. Hence there will be growth in physical security products and as previously mentioned access controls.

The presentation finished off highlighting 3 key growth trends in the smart area:

• Connectability of products with some using gateways; BSRIA’ recent field device study showed that sensors, actuators and dampers increasingly connected mainly using BUS but IoT protocols are also emerging.
•  Significant increase in analytical and energy efficiency software. Over half the analytical software is cloud based, with the majority is sold as SaaS and a small share is installed on the customers own cloud.
• A trend away from a product to more of a systems approach to service and maintenance. Many suppliers and Systems integrators are increasingly offering SaaS with no option for buying the software on its own.

BSRIA’s next Global HVAC insight presentation will be at the MOSTRA show, which will have a strong focus on Europe within a global context.

For further information on our forthcoming world studies, due out in March, please contact us now:

European sales enquiries: BSRIA UK: wmi@bsria.co.uk +44 (0) 1344 465 540 www.bsria.com/uk/

America sales enquiries: BSRIA USA: sales@bsria.com ¦ +1 312 753 6803 www.bsria.com/us/

China sales enquiries: BSRIA China: bsria@bsria.com.cn ¦ +86 10 6465 7707 www.bsria.com/cn/