BSRIA
Fig. 1: The provisional value of the UK air-conditioning market last year was £554 million, with VRF now exceeding chillers in value. (Source: BSRIA)

Domestic air-conditioning market starts to rear its head

Published:  19 June, 2005

While a domestic air-conditioning market is starting to emerge in the UK, it is developments in the commercial sector that are most interesting. FRANCESCO NAMBOKA has the details.

The UK air-conditioning market is still almost entirely a commercial market, although the residential market is starting to grow — strongly driven by moveable units.

The underlying trend of the moveables market is relatively stable — although volatile, very weather sensitive and driven by impulse buying and hire trade. This market experienced a sharp increase in 2003 due to the hot summer and remained stable during the first half of 2004. However, the second half of that year saw a drop in sales due to the poor summer. New entrants, particularly from the Far East, have increased competition on this market. Prices have dropped to £120 to £150 per unit at the bottom end in DIY chains. BSRIA’s view is that once the units price falls to less than £100, it becomes an impulse purchase and the market will take off.

Minisplits

Ominously some minisplit units (with DIY installation) are also appearing in B&Q. While this could result in a rapid increase in sales for the industry, there are fears that the UK will follow the Spanish experience. What happened there was that over time traditional refrigeration installers focused on the professional market, leaving plumbers and heating contractors to install smaller residential units. Complaints immediately soared, leaving suppliers with many problems. We do not expect such a step-change overnight, but this could be a problem for the UK in the future. It is likely that few super-contractors will start offering air-conditioning installation as their core business.

Although the UK minisplit market, at around 190 000 systems, is relatively small compared with Italy (1.9 million units) and Spain (1.4 million units), the major brands have done an impressive job in resisting the onslaught of low-cost units from the Chinese — unlike parts of southern Europe, which have been overrun. Eight companies dominate the UK: Daikin, Fujitsu, LG, Mitsubishi Electric, Mitsubishi Heavy, Sanyo, Panasonic and Toshiba-Carrier.

Inverter models for non-VRF units continue to rise at an impressive rate, as energy-labelling issues continue to be a key issue. Heat pumps now dominate, and companies have been dropping cooling-only models because of narrowing price differentials between the two types.

VRF

An analysis of VRF trends by value over time reveals the startling truths that VRF has already left chillers behind in value terms and is making ground on the traditional commercial split sector. Companies are bringing out water-cooled units to make further inroads against chillers and even have close-control versions.

Overall, the minisplits market is expected to grow by around 5% every year over the next five years, according to manufacturers. The fastest growing products in this segment will probably be VRFs, particularly small units.

Raw material prices, particularly steel, have increased manufacturing costs, but this has not yet affected the price of the products as manufacturers have had to swallow some of the cost due to increasing competitive pressure. The market is extremely price driven and very price sensitive. Other factors have helped to keep prices low in spite of the rising cost of manufacture.

Fig. 2: Developing trends — while the market for minisplits continues to grow, there is fierce competition between VRF and chillers. (Source: BSRIA)

Large packaged is a relatively small market. The rooftop market seems to have reached saturation point and is experiencing strong competition from the VRF market. The US-style ducted units and the indoor packaged units markets are flat markets. They are dominated by US companies — Airedale (recently acquired by the US Modine), Carrier, Lennox, Trane and York.

The close-control market has been more stable over the last few years, since the settling down of the dotcom boom. IT and telecommunications sectors mainly drive this market, as they are expected to pick up again in 2005. Companies, such as banks and insurance firms are looking at improving their IT systems. IT manufacturers are also working on developing new software and hardware. This is a fairly concentrated specialist market. A key differentiator in this market will be innovation in the product design.

Chillers

The chiller market experienced a tough decline in 2003 after having grown during 2001/02. In 2004, the market recovered by growing steadily by 3 to 4%. The market is expected to rise back to the level of 2001/2 during 2005, and is expected to experience a steady year-on-year growth of 4% at least over the next two years. However, this market is closely linked to the non-residential construction output, and any downturn in this would negatively impact on the market. Suppliers are also concerned about the threat of VRF, which has been hitting the small capacity ranges.

Chillers with reciprocating units are in decline and expected to gradually disappear from the market. Scrolls and screws are the most dominant units on the market. Screws sell particularly well, and manufacturers are trying to design smaller units. Centrifugal has remained a very small market, mostly because the units are water-cooled and their application remains niche. However, with new compressor technology from companies such as Turbocor, centrifugal will be able to compete at the smaller capacity ranges with some, albeit the first cost is still high.

Francesca Namboka is an international market-research consultant with BSRIA, Old Bracknell Lane West, Bracknell, Berks RG11 7AH.



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