HVAC – An Indispensable Part of Human Life

Heating, ventilation, and air-conditioning (HVAC) equipment are a product that provides heating and cooling to residential, commercial, and industrial buildings. The growing competition within the HVAC industry has led to a significant reduction in the prices over the years, which directly increased its demand – even among the lower-income group. Simultaneously, the development of a technologically advanced and energy-saving HVAC system has led to a steady surge in the replacement of old and traditional equipment with the new ones. Moreover, the growing re-modeling spending along with the expenditure on the construction on new residential and non-residential buildings is further providing the revenue generation opportunity for the manufacturers, with the HVAC equipment market size, projected to grow from US$116.515 billion in 2019 to US$162.123 billion in 2025 at a CAGR of 5.66%.

COVID-19 Fizzes Out the Anticipated Positive Outlook for the Air-Conditioner Generated From Freon Banned in the United States

Freon, commonly known as HCFC-22 and R-22 are common refrigerants that are widely used in air-conditioning units. In 2010, the Environmental Protection Agency announced that no new systems will be based on HCFC-22, and from January 2020 onwards, the manufacturing and import of the refrigerant have been prohibited. This implies that the existing units utilizing HCFC-22 and R-22 will have to be replaced or retrofitted in order to use a new refrigerant. Thus, the air-conditioners manufacturers in the United States were looking forward to generating higher revenues in 2020, but the entire outlook has been drastically changed after the COVID-19 pandemic which resulted in lockdown measures being imposed by the government leading to a temporary shutdown in retail stores and supermarkets to contain the spread of the virus. Moreover, the unemployment rates in the country have increased from 3.7% in June 2019 to 11.1% in June 2020, which is further expected to reduce the spending on HVAC equipment in 2020. Major air-conditioners manufacturers and brands have suffered a double-digit decline in the demand for air-conditioners.

However, the gradual relaxation in the lockdown measures and the simultaneous resumption in the construction sector and manufacturing facilities is expected to support the recovery of the market, specifically from the latter half of 2020. In fact, from 2021 onwards, a steady increase in the demand for air-conditioners is projected to drive the HVAC equipment market growth. In the pre-COVID-19 scenario, The U.S Bureau of Labor Statistics projected an increase in the employment for heating, air-conditioning, and refrigeration mechanics, and installer by 13% between 2018-28. This indicates that the HVAC market has a steady and positive outlook in the United States.

Employment Growth Projection in the United States, 2018-2028

Source: U.S Bureau of Labor Statistics

Recent Market Developments

• Zhimi – a Xiaomi ecological chain company launched the Zhimi antibacterial air filter in June 2020 that is currently available on the Xiaomi Youpin platform.

• In April 2020, Panasonic launched an advanced heating and cooling solutions “Aquarea High-Performance J Generation Bi-Bloc” which is considered ideal for new installation and refurbishment in low energy homes.

• In February 2020, Samsung India launched two new series of convertible inverter AC models that are energy efficient and are available 1-ton and 1.5-ton variants.

• Similarly, in March 2020, Voltas expanded its cooling product portfolio with the launch of the “Maha-Adjustable Inverter AC range” for the Indian Market.

• Aeris Health Inc. expanded its presence in the United States market after it announced a strategic partnership in February 2020 with direct to consumer retail player QVC.

• Novaerus, an Irish manufacturer of medical-grade clean air solutions announced the expansion of its distribution network in China in January 2020 to order to meet the growing demand for cleaner caused by the outbreak of the COVID-19 virus. The company’s disinfection units are based on the plasma technology that has the potential to curtail the impact of air-borne viruses. 

• Similarly, Camfil launched a portable air purifier in the United States amidst the rising demand for isolation areas and cleaner air as a result of the growing number of COVID-19 cases. 

• Daikin North America LLC launched the FitHeat Pump system for residential applications in January 2020.

• Panasonic, in September 2019, launched its new heat pump chiller series ECOi-W that has been specifically designed for the commercial and industrial setting.

• Daikin Europe N.V acquired 100% share of its Norwegian distributor ‘Friganor AS’ to strengthen its position in the country’s HVAC market in 2018.

Emerging Asian Economies – Key Growth Region

The global demand for air conditioner has increased from 104,367 thousand units in 2013 to 110,971 units in 2018 (source: The Japan Refrigeration and Air Conditioning Industry Association), with emerging Asian and oceanic countries like India, Vietnam, Philippines, Bangladesh, Indonesia, Australia, and New Zealand being the prime growth driver.

Air Conditioner Demand by Region, in Thousands Unit

Source: The Japan Refrigeration and Air Conditioning Industry Association

The air conditioner demand in the Asian countries (excluding China and Japan) has grown at a CAGR of 5.42% while the Oceanic continent too has witnessed a similar CAGR between 2013-2018. The expanding middle-class sector as a result of growing urbanization has been instrumental in driving the HVAC equipment market. It is estimated that the global size of the middle-class population will reach 4.9 billion by 2030, from 1.9 billion in 2009 with Asia estimated to represent 66% of the global middle-class population and 59% of the global middle-class consumption by 2030 (source: OECD). Furthermore, of the individuals that were considered poor in 1993 in Indonesia, 80% were no longer poor by 2014, suggesting substantial progress has been made.  The middle-class segment has been growing at 12% annually since 2002 and currently represents half of the overall household consumption in the country (source: World Bank). Thus, the expanding spending ability of the individuals in the emerging countries along with the focus of the government to develop residential and commercial sectors is projected to drive the HVAC equipment market growth during the forecast period.