CHICAGO — LET'S MAKE LEMONADE. The overall residential and commercial markets will range from bad to horrible in 2010. Service work and certain niche markets, especially in green work, will be ok.
During downturns, owners will put off new construction, but maintain their properties. That was not the case in 2009 when owners delayed service work, so demand for service is pent up. The green space will continue to see work, both for private owners and the government. A lot of military building construction will be green.
Let's start with a heavy dose of realism. Don't plan on anything great happening in 2010 or even 2011. Things will turn around in 2012 and 2013.
“Anything outside of the institutional or more public sector type of work could be down 15%-30%, depending on the sector,” said Tony Guzzi, president and chief operating officer of EMCOR Group. “When you look at sectors like commercial and hospitality, they're down 50%. Nobody has seen anything like that since ‘92 or so. So we went from a period when we said, ‘Geez, we don't seem to be overbuilt,’ but we really are. When you have 10% unemployment and the sectors that need a lot of office space, like financial services, take a huge hit, and all of those sectors that depend on financial services take a huge hit, the result is people don't spend money on the capital side.”
Guzzi blames part of the malaise to uncertainty coming from Washington, concerning, for example, a long-term energy policy. When faced with uncertainty, good business people gather all the information they can and wait, which is what they've been doing.
Ingrid Mattsson, senior manager — brand management for Uponor, who is cautiously optimistic for 2010, said the big uncertainties include the level of unemployment, how bad the next round of foreclosures is, and the lack of bank financing.
Lonnie Coleman, president of the Mechanical Contractors Association of America and of Coleman-Spohn Corp., Cleveland, also cited a lack of bank financing. The Federal stimulus was just a temporary fix, he said.
“It will take the banks and lending institutions to open up credit to small businesses, builders developers,” Coleman said. “If it doesn't happen in 2010, it will not be a good year for the construction industry. If credit is not extended, 2011 could be just as bad … construction needs banks loaning dollars to get projects started.”
An anomaly in 2009 was the lack of service and replacement work, which could lead to more retrofits this year.
“Last year we saw a drastic reduction in maintenance capital across the board,” Guzzi said. “People would decide not to replace the chiller and we would do a temporary fix for them when we should be replacing it. I think now that in the back half of ‘10 maintenance will come back because there has been so much deferral and so much delay that it doesn't make sense anymore.”
Similarly, Chuck Rohde, wholesale market manager for Rheem Water Heaters, noted that building owners put off replacing water heaters in 2009 and he expects the replacement market to pick up.
“In a hotel, if occupancy is down, they valve off a water heater when it fails and fix when occupancy picks up,” Rohde said.
Forget the residential new construction market. Both Rohde and Mike Parker, vice president of marketing and strategic planning for A.O. Smith, State and American Water Heaters, have pegged the residential new construction market at 650,000 units, a far cry from their peak of 1.6 million.
“If you go back a couple years, in 2006 there were 9.5 million water heaters shipped and next year it could be as low as 7.5 million tank-type residential heaters,” Parker said, about the same as 2009. “Now on the commercial side the water heating world is following the same trend. Next year residential will be relatively flat, but commercial will take another step down. Gas tankless is still seeing some growth although it has slowed down quite a bit and we expect it to continue to grow at moderate rates, something like 5% a year for next couple years. Tankless benefits an awful lot from tax incentives and, as long as they stay in place, you will see growth.”
The green, sustainable and energy conservation market will be one of the year's bright spots.
Fernando C. Mireles, vice president of sales & marketing for plumbing and heating valve maker Webstone, Worcester, Mass., expects, “not a lot of change in the first quarter of 2010, but I'm optimistic for the three quarters that follow. We see an upturn in sales in energy-related projects in our industry, and that's based on the transitions we've seen in our own business and what we're hearing out there.”
Dennis Wierzbicki, president of Grundfos U.S., Olathe, Kan., said his firm will be focusing on solar, geothermal and energy conservation markets, and he expects federal funding and tax credits for green work to continue.
Matt Knox, CEO, for online contractor classified firm DiggersList.com, said contractors should look for more green work this year as some cities, such as San Diego, emphasize green in their codes. Knox also encouraged contractors to look for retrofit jobs where a homeowner will do part of the work and call a contractor for the parts where the homeowner will be in over his head.
John Kolson, vice president and general manager of the Watts HVAC Group, similarly said that contractors should look for smaller weeklong projects to keep themselves busy.
“From an industry perspective, one thing I struggle with is when will we see federal money trickling down into actual projects?” Kolson said. “We've been talking to architects and engineers about a lot of work that's being bid but not being awarded. At Watts, we're picking up a lot of design work, but a lot of it is just conceptual.”
Grundfos' Wierzbicki is also looking for more stimulus money, especially for water and wastewater, schools and hospitals. Wierzbicki expects a lot of military building construction to go green.
Wierzbicki also expects further Federal stimulus money because, he opines, once the healthcare legislation is finished, the Obama Administration will realize that it needs to get unemployment down if it hopes to remain in office past 2012.