Commercial Market 2008 - June 2008
By Darius Helm
Though the commercial market grew last year, its rate of growth has been slowing since 2005, and 2008 may end up close to flat. However, while some commercial sectors seem to be losing ground, others are booming.
It was another big year for the hospitality business, with sales in that sector up over 13%. Hospitality has had a high growth rate for four years, following a couple of years of very slow sales after 9/11, and the wave of business from all that pent up demand coincided, and also helped drive, a large scale makeover of the hospitality business, particularly at the high end. New hotel brands have emerged, boutique hotels are popping up everywhere, and high end hotels and resorts have broadened their vision of luxury and service.
Globally, the hospitality industry has grown as more and more people travel for business and leisure—thanks in part to baby boomers in their peak spending years. The weak dollar has helped boost the domestic lodgings market because the exchange rate makes the U.S. an attractive destination for foreign visitors. Even the current economic slowdown may have an upside, since Americans are increasingly choosing to vacation within the U.S. rather than overseas—the weak dollar also makes vacations in other countries less attractive.
The growth rate in the hospitality sector is expected to slow as part of its natural cycle, perhaps in 2009. There are some signs that it’s already slowing.
The healthcare sector has been strong for several years now, and that’s another sector significantly boosted by baby boomers. Healthcare should remain strong for the foreseeable future, with the oldest baby boomers just hitting retirement now and the youngest still two decades from their golden years—and the years they’ll be needing the most healthcare.
Like the hospitality industry but to a greater degree, the healthcare business has transformed itself as the market has surged. The acute care side—hospitals and clinics—was long overdue for a complete makeover, windows and floors to plumbing and wiring, in order to assimilate both new technologies and the new role of architecture and design in the healthcare model.
The assisted living sector has grown so huge and is so distinct from acute care in almost every way that the two should really be in separate categories. In fact, many carpet mills serve the assisted living sector with their hospitality divisions. Acute care facilities use a lot of vinyl, with broadloom or carpet tile in the public areas. Designs are rarely extravagant. However, the assisted living sector uses a mix of residential and hospitality designs so the new lifestyle feels both like home and like a vacation.
In many ways, the biggest senior living centers, called Continuing Care Retirement Communities, or CCRCs, resemble resorts more than anything else. The campuses feature health clubs, restaurants, retail shops, workshops and a range of activities. Some are even located adjacent to college campuses so residents can take courses. The CCRCs contain independent living and assisted living housing as well as well as nursing homes, so they can accommodate everyone through every stage of their aging process.
CCRCs are costly and require extensive contracts, so low income and even middle income retirees may end up in retirement homes with considerably fewer amenities, but plenty of Americans can afford to spend their twilight years in these growing communities, enough to keep the sector strong for a long time.
Even the education market is feeling the impact of baby boomers. This year, a record number of students applied for college—they’re the baby boomers’ babies. And that number will continue to climb. Colleges have never been more competitive, and that includes everything from offering the finest amenities to using the best architecture and design.
The K-12 part of the education business is not as strong as higher education, but it’s still growing. A lot of that growth is organic. As populations grow and new communities are built, new schools are needed.
For many flooring manufacturers, the retail store planning sector has been a mixed bag. While many retailers are putting off renovating their stores, there’s only so much that can be postponed. Retail stores can’t afford to look shabby and outdated.
Overall, the retail sector grew last year, though it may not be so lucky this year.
Mainstreet business generally flows through flooring dealers and includes smaller jobs like beauty salons, dentist offices and other small businesses. That sector was down a hair last year, with mainstreet broadloom, which accounts for 60% of that market, down over 2%. The only flooring category that showed significant gains in mainstreet sales was vinyl, which is for many the best alternative during lean times—vinyl was up over 3%.
The corporate market has been growing more sluggish. Projects that can be deferred, like tenant improvement work, are being increasingly pushed back. Higher end projects have fared better, but some industry experts believe it’s inevitable that the financial segment of the corporate market will cut back on spending. Most carpet mills showed growth in the corporate office market or were flat. This year, the corporate sector will probably be down a bit, though carpet tile business was up in that sector.
It was a great year for carpet tile and not such a good year for broadloom. Carpet tile used to be substantially more expensive than broadloom, but over the 30 or so years since carpet tile was first introduced to the U.S. market, its cost compared to broadloom has steadily gone down. These days, carpet tile is only marginally more expensive than broadloom, and it’s often more affordable when the entire lifecycle of the product and installation costs are taken into consideration—making it hard to resist, particularly with advancements in carpet tile design. In addition, carpet tile often offers greener attributes, which can be the deal breaker in the specified market.
Carpet tile continues to take share from broadloom in most commercial segments, and it’s made the fastest inroads in the corporate and education markets. In the K-12 segment of the education market, carpet tile is steadily replacing six foot goods. Carpet tile is also used increasingly in government jobs and retail store planning. The hospitality market is still dominated by broadloom, but carpet tile is making inroads in corridors, ballrooms and sometimes guestrooms.
On the hard surface side, vinyl has the biggest share of the specified market at over 45%, though ceramic tile has a slightly better position than vinyl in the mainstreet market. Last year, vinyl made marginal share gains in the specified market and stronger gains in mainstreet business. Vinyl does a lot of business in the healthcare market, which helped growth, and vinyl’s affordability also likely played a role—particularly in mainstreet.
Ceramic tile only grew about a point in specified business and ended up losing a little share. Ceramic tile imports were down substantially last year, in part due to the pressure of the weak dollar. Ceramic growth on the mainstreet side was about flat—ceramic tile accounts for over 40% of hard surface mainstreet business.
Hardwood flooring has a small share of commercial hard surface business, accounting for between 13% and 15% of both specified and mainstreet business. Everyone likes the look of hardwood but it doesn’t necessarily perform well in many commercial environments. Some high performance hardwoods, like acrylic impregnated woods, have paved the way for hardwood’s use in restaurants, retail store planning and the hospitality sector.
Laminates are even newer to the commercial market. They’re generally specified in retail store planning, healthcare and hospitality. Laminates have a somewhat stronger position in the mainstreet market. For a lot of small businesses, laminate flooring can be used to create the warm feel of wood at a lower cost than the real thing.
For a close look at the top 15 specified carpet manufacturers, see the June 2008 issue of Floor Focus Magazine.
Copyright 2008 Floor Focus