The HVAC market is more disrupted than ever
The recent years have been a period of exceptional disruption in the HVAC equipment market. COVID-19 brought disruptions in supply chains, delays in component production. Just as the market was adapting to the new environment, the war in Ukraine erupted, causing significant investment uncertainty and sharp fluctuations in energy and raw material prices. Inflation in the heating, ventilation, and air conditioning equipment market was exceptionally high. The shift away from Russian energy resources, combined with the EU’s long-term climate policy, led to a boom in the heat pump market.
Forecasts for 2023 predicted the continuation of the trends and developments observed in 2022, but reality turned out to be completely different. The latest PMR report, “HVAC Market in Poland 2023: Market Analysis and Development Forecasts for 2023-2028,” presents the most likely development of the HVAC sector, taking into account the current situation in the construction industry.
Correction in the residential construction sector led to a decrease in demand for HVAC equipment
The record-low interest rates in recent years made the situation in the mortgage market very challenging. After a record year for the mortgage market in 2021, there was a significant downturn in the mortgage market in 2022:
- 133.3 thousand housing loans were granted, representing a 51.4% YoY decrease.
- The value of granted loans decreased by 49.1% YoY to a level of 45.4 billion PLN (data from BIK).
The weakened demand discouraged both developers and individuals building single-family homes from starting new investments. Banks, customers, and developers were all waiting for the physical launch of a new government program. This resulted in a significant decline in the number of newly initiated housing projects in the first half of 2023.
This waiting period was also clearly visible in the HVAC equipment market. Manufacturers and sellers were waiting for a revival of demand, hoping that it would occur with the expected recovery in the housing construction market, which had the potential to happen with a decrease in inflation, a reduction in interest rates, and a resurgence in the mortgage market.
In the first half of 2023, there was already a clear rebound in the mortgage market, and it appears that the market is leveraging the demand boost brought about by the long-awaited government program, “Secure 2% Credit.” As of the end of September, participating banks had received over 47,000 credit applications, and 12,000 loans were granted.
The demand boost resulting from the eagerly awaited government program, combined with an attractive level of general construction prices from a developer’s perspective and a record-low supply in the developer market, could lead to a rebound in terms of newly initiated residential construction projects. This hypothesis is supported by August data, where particular attention should be given to the over 100% YoY increase in new projects initiated by developers. If the coming months bring similar data, it will be possible to talk about an expected slowdown in the downward trend in the HVAC equipment market. The decline in market dynamics in 2024 will be less pronounced, and HVAC equipment sales will return to growth in 2025.
Find comprehensive information about the current state of the Polish thermal insulation materials market in the PMR report:
While the demand for most HVAC equipment in the residential construction sector saw a significant decline in 2023, the commercial construction sector does not show as deep a downturn. This is because the currently installed equipment pertains to projects planned and initiated earlier, either before the outbreak of the war in Ukraine or even prior to the COVID-19 pandemic. These are installations that are custom-designed and tailored to the specific projects.
It’s worth noting that most segments of the commercial construction sector are still facing relatively challenging conditions. Segments such as retail and service buildings, office buildings, hotels, as well as public utility buildings, have been affected by the downturn in investment activity due to COVID-19. They have not been able to recover their losses and investment delays and have been further impacted by the adverse effects of the war in Ukraine, leading to another slowdown in new investments.
On the other hand, there are segments where no clear slowdown is evident, and unlike other parts of the commercial market, they continue to experience growth. Industrial and industrial-warehouse buildings, as well as buildings related to data centers, fall into this category. This is linked to the increasing foreign direct investments and the nearshoring trend. The significant investments from companies like Mercedes Benz, Intel, PepsiCo, Amazon, along with the investment plans of leading heat pump companies and the growing investments in electric vehicle battery factories, confirm the substantial potential in these market segments. The data center sector benefits from the popularity of digital transformation trends and the increasing role of services in the Polish economy.
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Construction Business Unit Director