HVACR Distribution: Never a Dull Moment

Tim Fisher, director, market intelligence for Heating, Air Conditioning, Refrigeration Distributors International (HARDI), spoke to  Contracting Business about HVAC industry growth in 2021, in conjunction with HARDI’s Annual Regional Outlooks Report, due to be released on February 7, and available for purchase to both HARDI members and non-members.

Fisher admitted that 2021 was an amazing year for HVACR distributor sales, with many surprises and very few disappointments. Much of the nation was operating almost as one collective region.

“The one thing I’ve noticed in terms of finalizing our annual report here, is that there is a ton of variance. Ductless trends are out of control in every region, and commercial construction has been down in every region. And possibly with the exception of one or two regions next year, we’re not anticipating anything beyond flat or downward growth in commercial construction.”

WEST

Furnace sales took a hit in California, possibly as a continued lingering effect of the state’s ongoing Low NOx (nitrous oxide) regulations in effect in much of the state. As of October 1, 2019, all gas furnaces  installed in some regions of the state had to meet the new ultra-low 65 percent lower NOx emission requirement. Furnaces offered for sale, supplied, sold, or installed must emit less than 14 nanograms per Joule of NOx.

But generally, Fisher said, furnace sales have finally started to rebound in the Western region (California, Oregon, Washington, Idaho, some of Montana) and an overwhelming majority of sales are going to California. “That’s something at least right now that we see continuing. An upward trajectory is not too much of a reach,” he said.

The majority of Western region distributor sales are attributed to ducted air conditioning units.

Western region sales of HVAC equipment overall as reported by HARDI members as of January 27 showed a 23 percent increase in 2021 sales over 2020.  

The majority of Western region distributor sales are attributed to ducted air conditioning units.

“Furnaces comprise a good chunk of the overall pie, and a rebound in furnace sales is definitely a positive, but the lion’s share is coming from ducted AC units,” Fisher said.

Ductless HVAC's Great Growth

Ductless HVAC system sales have increased over 2020 in just about every region of the U.S.

“In general this is something we’ve seen since the start of COVID,” Fisher shared. “Heat pump sales have been up, but ductless has really started to boom. There’s potentially something here, where there’s a little extra liquidity floating around, households have more spending power, and are spending more time at home. I think the ductless boom also has something to do with home remodeling activity, given the increased amount of time people have been spending at home. Maybe someone wants to air condition a detached garage, or a new sunroom that doesn’t have ductwork running into it.  There’s a lot of speculation there, but I think that’s a big chunk of it,” Fisher offered. Fisher said the Southeast region -- North and South Carolina, Virginia -- is more interesting to analyze, because the overall breakdown of equipment shipments is a little more balanced.

Southeast

“The North-Central part of the country uses more furnace systems, and then you’ll have air conditioning units for summer, but in the Southeast it’s a pretty even split between ducted heat pump sales and ducted air conditioning sales. Furnace sales in the Southeast over last couple of years has been an increasingly smaller component of that overall breakdown. We’re still waiting on fourth quarter data from our equipment sales report, but through the end of the third quarter 2021, furnace sales were down year-over-year in the Southeast. We’ve been watching the furnace market closely for the past couple of years. What had been a reliable market has seen a steady decline, and the question is, does this have to do with heat pumps taking share from furnace sales? I think the answer is mixed.

"This is kind of a broad national commentary, but in general there are still so many households nationally that rely on natural gas as a fuel source and it’s so much easier for existing homes to replace an old gas furnace with a new one rather than switch to a heat pump system," Fisher offered.

Fisher said ducted heat pump sales are significant drivers of distributor revenue in the Southeast. And overall, the southeast has performed better during “the COVID experience” than the Northeast and mid-Atlantic.

“There have been some setbacks here and there as COVID outbreaks popped up, but existing home sales in the Southeast year-over-year are up 10 percent, and that’s something you see pretty much across the board nationally. The national trend is an eight percent increase. Existing home sales is a good leading indicator of replacement activity. That’s been a positive.”

In the commercial HVAC segment, Fisher said, the Southeast has struggled along with other regions in terms of commercial construction over last two years, as a lot of developers have worked through backlogs that existed, and there has been a reticence to invest broadly in new projects.

“The residential market’s solid performance has helped offset some of that decline in commercial construction. If you’re a large mechanical contractor who is only doing commercial project, it hurts, but if you’re a distributor who is generally more biased to residential sales, it’s been a good offset for the struggles the commercial market has had.”

Central and Great Lakes

Fisher said there is usually minimal variation between sales activity in the Central (plain states) and Great Lakes (Michigan, Indiana, Illinois, Ohio, Kentucky, West Virginia regions.

Existing home sales in the Central region is a positive force driving increased HVAC system replacement activity.

Existing home sales in the Central region is a positive force driving increased HVAC system replacement activity.

“The Central region is primarily driven by sales of ducted air conditioning units, and it’s been a huge furnace market over the last year. Ductless sales have also been astronomically high. Again, it’s been so interesting to see what’s happening in the ductless market. When we start getting past COVID, the growth should decline. It can’t sustain 30 percent growth forever,” Fisher suggested.

Northeast and mid-Atlantic

The Northeastern was struggling for a long time during COVID, but things have started to ease.

"The Southwest and Southeast are still performing better than the Northeast or mid-Atlantic, but the differences are not as pronounced as they had been," Fisher shared.

"The biggest difference you might hear in what I’m saying is that there are differences in product mix, due to the variation in building types. Many buildings in the Northeast are older and there is a much greater reliance on oil as a fuel source, and a heavier reliance on boiler systems and furnaces. The outlook for the boiler and furnace markets in the Northeast will be dramatically different from what you’d be expecting in the Western or Central states. But on a macro level, talking about the broader economy, things are tightening, in that there is a convergence among regions."