Light Commercial/Commercial Outlook: Partly Sunny, Lingering Clouds
Originally published: 01.01.11 by Tonya Vinas
Contractors aren’t forecasting a full recovery in 2011, but they see several bright spots.
The worst of the storm is over, but keep those umbrellas handy. That’s the 2011 forecast for contractors serving the light commercial/commercial sectors, which were plunged into frozen standstills early in The Great Recession and are just now starting to thaw.
Contractors, equipment suppliers, and industry groups expect 2011 to be an improvement over 2010, but not an immense improvement. Consumer trends, regulatory requirements, and incentive programs are making anything elated to energy efficiency a promising opportunity; and expanding and/or rebounding sectors such as healthcare and stimulus-fueled public works projects are also brightening the outlook somewhat.
“When I travel around the country, sure I see there are pockets where people are busier, but by and large across the United States it’s very slow,” said Robert T. Armistead, president of Armistead Mechanical Inc. and president of the Mechanical Contractors Association of America. “We’ll see some slight movement going into 2011, but very slight. I don’t see it getting much better until the third or fourth quarter, and hopefully by then. But we do see some slight improvement.”
Even with this subdued attitude, Armistead and other contractors are investing in their businesses by buying new equipment, expanding services, and beefing up marketing and advertising budgets. That’s because they are confident that although 2011 will be a year of transition, 2012 and beyond will be brighter.
Everyone interviewed for this article cited energy conservation and savings as the No. 1 area of opportunity for light commercial/commercial contractors. “Clearly, our society and our country is going in that direction — more energy independence, focusing on energy efficiency — so there’s opportunity there,” Armistead said. “I see this in the private sector, as well as all levels of government, including local government. “In our area for instance — the Hudson Valley — the Port Authorities of New York and New Jersey took over Stewart International Airport, and anything they are going to do at the airport in Newburgh, N.Y., is going to be focused on LEED and energy efficiency.”
Optimum Energy LLC, a provider of hvac software solutions, has installed its solution in six commercial facilities in New York State, including the 1271 Avenue of the America’s Building, New York City; a GE manufacturing facility in Troy; and Westfield Group’s Sunshine shopping center in Massapequa.
Collectively, the six New York installations are expected to reduce hvac energy consumption by more than 9.9 million kWh annually, resulting in: operating cost savings of more than $2 million per year; water savings of more than 4 million gallons per year; and greenhouse gas emission savings of more than 16 million pounds per year.
Optimum Energy also is conducting site assessments of five Suffolk County municipal buildings, including a power plant that serves several buildings, an office tower, two court complexes, and the medical examiner’s building. Preliminary calculations predict implementation of OptimumHVAC in these facilities may result in greater than 2 million kWh of energy savings annually for Suffolk County.
“New York is leading the charge to more sustainable buildings with innovative programs such as New York City’s benchmarking, audit, and retrocommissioning initiatives,” said Nathan Rothman, founder and CEO of Optimum Energy. “As a result, our New York customers are very aware of the actual performance of their buildings. Implementing nextgeneration solutions not only provides for significant benchmark improvements, it also makes solid business sense when you consider the cost savings. That is driving strong interest from our customers.”
Equipment manufacturers are responding to the energy-conservation trend by providing system solutions with energy-saving attributes. “We introduced our Energence rooftop unit product line — focused on energy efficiency — at the beginning of 2010, and we expect to continue our focus on energy efficiency with future products,” said Larry Wei, Product Manager of rooftop units for Lennox.
Wei said products can promote energy efficiency in three ways: with “smart controls” that make existing systems more efficient through the use of sensors and diagnostics; by adding new technology such as variable-speed components that reduce consumption while maintaining comfort; and by integrating use of sustainable/ renewable energy sources.
Genteq is another company focusing on energy-saving products for contractors. In November the company introduced what it said is “the world’s first universal electrically commutated motor (ECM) for aftermarket light commercial heating and cooling applications.” The Evergreen CM uses up to 50% fewer watts than a standard indoor Permanent Split Capacitor (PSC) blower motor, the company said.
Carrier Corp., in another example, launched the Carrier Corp. Institute for Sustainability in collaboration with the U.S. Green Building Council to train employees and customers in implementing sustainable building solutions. In addition to products, energymanagement services is another expanding area for both contractors such as Armistead and equipment providers such as Schneider Electric, which announced creation of a Green Buildings segment within its Buildings Business in fall of 2010.
“The rising price of energy combined with growing environmental concerns and aggressive regulation in many parts of the world means that energy efficiency can no longer be optional or an afterthought,” said Melissa O’Mara, newly appointed vice president, Green Buildings Solutions.
“Businesses that own or operate any type of building must invest in more efficient technologies that reduce financial, regulatory, and environmental risks.”
More Opportunity Knocking
One industry that was affected the least by The Great Recession and seems to be on the most accelerated recovery curve is healthcare, which is ripe with opportunities for light commercial/ commercial contractors.
A survey released in September 2010 reported that healthcare organizations are more likely to invest in energy efficiency for their facilities compared with other industry sectors.
Johnson Controls, in conjunction with the American Society for Healthcare Engineering and the International Facility Management Association, commissioned the survey, which polled 2,882 executives and managers responsible for making investments and managing energy in facilities worldwide. Key findings of the survey included:
- 58% of healthcare building decision makers say that energy management was very or extremely important to their organization, compared with 52% among North American respondents across all sectors.
- 67% of healthcare organizations plan to make capital investments in energy efficiency over the next 12 months, compared with only 52% overall in North America. The survey also showed that the healthcare sector has implemented a variety of measures to achieve energy efficiency: • 73% have included lighting retrofits.
- 57% made adjustments to hvac controls.
- 56% installed occupancy or daylight sensors.
- 56% upgraded or improved to building automation systems.
- 41% replaced inefficient equipment.
Where will other opportunities be?
Look for excessive pent-up demand (meaning replacing outdated equipment makes sense from an ROI standpoint) or newly available public funding. Mark Barraclough, president of Alpine Mechanical Services LLC, is optimistic about servicing Big Box retailers, his primary customer.
“2011 is going to continue to be a cautious year for customers as they continue to see how the economy moves forward,” Barraclough said. “Retail will continue to move forward as consumer confidence grows. We are already seeing positive results from most retailers since Black Friday.“
One retailer made this sunny comment to Barraclough: “A major Big Box retailer said that they wished we were in several more markets than we presently are located. We are working to accommodate their requests!”
Churches, museums, and other nonprofit organizations also present an opportunity. Many are tapping into state programs that offer attractive financing or funding sources for projects that result in energy savings.
For example, Brady, an energy systems and building solutions company, was hired to make $5 million in mechanical system improvements to the North Carolina Museum of Art East Building that produced $2.1 million in utility and maintenance savings and improved humidity control to a level that allowed many new traveling exhibits to appear at the museum.
“Without the upgrades to the East Building, many traveling exhibits, including the American Chronicles: The Art of Norman Rockwell, Monet, and the Egyptian exhibitions, could not come to the state capital,” said Larry Wheeler, director for the North Carolina Museum of Art.
The project was funded by a state energy- savings program and is guaranteed to return $6 million in utility and maintenance savings over 12 years. Investing for the Future Despite lukewarm expectations for a bounce-back in 2011, light commercial /commercial contractors continue to invest in their business, which reflects their expectations for a better business climate in 2012 and beyond.
Armistead’s firm, for example, is in the second year of a major investment in rebranding and marketing and is building up the energy-management services portion of the business. Barraclough of Alpine Mechanical said his company will continue to invest heavily in emerging technology and will be hiring new technicians in 2011.
And, according to a survey by the Construction Marketing Association (CMA), 65% of construction marketing professionals plan to increase marketing activities in 2011 compared with 22.5% who plan to decrease funding, and 12.5% who will be maintaining the same budget. One company that is investing in both new employees and more marketing is BIG SKY Enterprises, a New Jersey commercial design and build firm that specializes in church construction.
Additionally, it provides financing through Big Sky Financial Services Division. In 2010, the company hired two new positions (director of field operations and administrative assistant) and contracted with a corporate-branding firm and a public relations agency.
“I’m confident that as the economy rebounds and the financial climate improves in the commercial construction marketplace at large, we are extraordinarily well positioned to continue our sales and revenue growth,” said Michael Regina, co-founder and owner of BIG SKY. “In fact, for 2011 we are forecasting our best year ever, with multiple largescale projects under construction and with our burgeoning financing company expanding nationally.”
Tonya Vinas is a former editor of HVACR Business.