Displays of strength in the market such as the 23 % growth exibhited in 1996 and the 15 % rise in 1998, are predicted to be replaced by miniscule figures in comparison, with the market only growing by the odd percent each year in this second review period. The current state of play would seem to be then, that the market has evened out.
The dip in the market in 2000 was put down to a slow down in construction activity and seen as only a temporary blip in the progress of the market value, but why is the growth predicted to take place on such a smaller scale than in the previous period? Alan Tyson, commercial director of Carrier says: "There aren't so many big jobs in the commercial market at the moment. There has been a slow down in spending. Projects like Canary Wharf were big jobs that helped the market to grow as quickly as it did, but those big projects aren't around at the moment. I just think there has been a general slow down."
Tyson indicates that this slow down is being felt by everyone, and that it won't change for some time to come: "Last year was a very flat year and this year is much the same. At the moment there are a lot of people fighting for less business. There are a lot more players in the market and price is a big issue right now. Our distributors are saying to us that it is very quiet at the moment and that their competitors are finding it just as slow. One of our distributors has even gone into liquidation, but in the long-term I think the growth is still pretty strong. This is only a short-term blip."
The link between the construction industry and the air conditioning market is key in any discussion on the sector, and is seen by MBD as the main determining factor in any growth or slump that different types on air conditioning may be going through.
MBD indicate that the slow down in the growth of the packaged air conditioning market between 2001 and 2005 would be due to a sharp short-term increase in new construction – and therefore more use of central plant equipment as opposed to the packaged option.
Although packaged air conditioning has, over recent years, gained a greater share of the new construction market as well as retaining the majority of installations in the refurbishment market, it will lag behind the rest of the market unless its substitution of central plant products in the new construction sector increases dramatically.
The market for central plant equipment suffered somewhat in the last decade, as the construction sector was experiencing a downturn and was also affected by the market penetration of packaged equipment. The level of competition Alan Tyson pointed out was also a major factor in its poor performance.
The expected short-term rise in new construction activity has given cause for predictions to be more optimistic up to 2005, after the sector recovered from its slump in 1997. The market recovered to find itself on an upward gradient at the end of 2000 – its sales having risen from £213.8 million in 1996 to £223.9 million in the final year of that first period reviewed by MBD. Predictions for 2001 to 2005 indicate a higher increase from £233.8 million up to £253.2 million.
Sales of air handling units dipped to 79.9 in 1997 but reovered to finish 2000 at 86.1. For the period 2001 to 2005, the figure is expected to rise from £90.4 million to £96.3 million. Package chilers, a segemnt of the central plant unit that failed to reach the 60 million sales mark throughout the first review stage, despite having been at £57.6 million in 1996, are predicted to grow from £60.1 milion in 2001 to 65.7 million in 2005. In terminal units however, growth is expected to be slower all round with far more modest increases expected in Fans, vav, constant volume units and heat rejection equipment. Any growth in the central plant equipment sector though, will always be dependent on the level of construction activity.
Packaged air conditioning sales were, this year, predicted to grow by just 2 % and then in 2003 by 3 %. By 2005, the sales of packaged air conditioning are expected to have grown 7 % in real terms since 2001 and reach a figure of £341.4 million.
When compared to the growth figures of the period from 1996 to 2000, this demonstrates how much the market has dropped off. The split systems segment of the packaged market grew in that first period from £169.4 million to £237.4, but between 2001 and 2005, this growth is expected to go from £251.6 to £268.3.
Similar slow downs can be seen across the packaged sector. In the close controllled systems market, sales went from 19.3 million to 32.8 milion between 1996 and 2000. This level of growth is not predicted to be repeated in the first five years of the new century, with the figure rising just 4.1 million, from £35.1 million to £39.2million.
In trying to pinpoint a prime reason for the down turn in growth, the high-tech industry can certainly be seen as one of the main culprits for the decreased spending just before the millennium.
Until the late nineties, this was growing at an extremely high rate and the air conditioning market felt the positive effects proportionately. It followed then, that when the bubble burst for many of these companies, that the air conditioning industry would feel the pinch accordingly. With expenditure down, and investment hard to come by, there was only one way for the market to go, and it certainly wasn't going to carry on as before.
John Bennett, marketing consultant for Airedale comments: "A lot of areas that were buoyant a few years ago have hit the buffers now. It's harder to get planning permission for big out of town developments and the big chains are now looking more towards convenience stores. There will be opportunities to upgrade the equipment in these stores as they are refurbished and there could be more call for packaged equipment."
So the current climate is not completely inhospitable towards growth of the air conditioning market, but it has demonstrated to all in the industry, the combination of circumstances that can contrive to stunt its growth.
Bennett is of the opinion that any projects undertaken now are done so with the client taking into full account the issue of energy efficiency, as well as looking not just at the initial cost, but more-long term: "Energy efficiency is much more key now and that's been fuelled by the climate change levy. A lot of equipment is coming tothe end of its life and will be replaced. We'll see a lot more use of free coolant systems and close control systems. People are not just looking at the cost of buying the equipment, but also at the lifetime cost of running it."
This period has provided a clear illustration of the factors that can bring about a downturn in activity as well as demonstrating the areas that, in the long term, will do better than others.
Tyson also points out that some products are experiencing some positive activity at present: "One area on the increase at the moment is the small chillers. It seems that there are a lot of small to medium projects around at present and sales of small chillers are certainly up. We also released a new chilled water system and that is something that's growing now as well."
The predictions from MBD for the next few years in the air conditioning market would appear accurate judging by what those inside the industry have to say about it's current state, but the slow down in growth doesn't seem to be cause for concern. Tyson adds: "I think this is just a hiccup, I don't think we'll see another boom like that one for quite a while, but it will just grow much more sensibly than before."
Source
Building Sustainable Design
Postscript
Market watch is based on information supplied by Market & Business Development. For more Information on MBD reports see the website www.mbdltd.co.uk. Also, for more information some of the figures for the period 1996-2000 discussed in this article - refer to the September 2001 edition of BSJ.
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