Commercial Market 2020: Last year, the commercial market was flat, with gains in hard surface offset by carpet declines - June 2020
By Intrduction by Darius Helm; Statistics by Market Insights
While the commercial market was technically down a hair in 2019 for the first time in a decade, market uncertainty in some sectors erased gains in others, and tariffs on Chinese goods led to the stockpiling of hard surface imports in 2018, inflating sales for 2018 at the expense of 2019. In general, 2019 started off slow and finished strong, with momentum carrying into the first couple of months of 2020.
Last year, the U.S. commercial market ended the year at $6.296 billion, made up of $3.700 billion in carpet and $2.596 in hard surface. Soft surface flooring, which accounts for 59% of commercial flooring sales, fell 1.5%, while hard surface flooring grew by 1.4%, though additional growth was captured in 2018 numbers.
The general trend in the commercial market is a shift from soft surface to hard surface. Within soft surface, the shift is from broadloom to carpet tile, with carpet tile accounting for about three quarters of the soft surface category.
In hard surface, about 90% of the market is either ceramic tile or resilient flooring, with resilient flooring somewhat larger than ceramic. And resilient is made up of mostly vinyl flooring, the biggest piece of which is LVT, followed by sheet goods and VCT. Another big piece of resilient is rubber flooring, and the smallest part is linoleum, which is also the greenest option. Fastest growing is LVT.
In the commercial market, most LVT is traditional flexible LVT that is glued down to meet the required performance standards in terms of foot traffic, rolling loads and the like. In the residential market, the gains are coming from rigid LVT, like WPC and SPC, which use click systems for glueless floating installations. There is some rigid LVT making its way into the commercial market, mostly as WPC in mid- to higher-end multifamily construction projects, since WPC can reduce sound transmission between floors and is softer and warmer underfoot than, say, ceramic tile. For similar reasons, WPC is also being used in some hospitality projects. Both gluedown and click WPC are available for the commercial market.
Sheet goods and VCT are both losing share to LVT on the commercial side. VCT is also losing to concrete, particularly in the retail sector. Sheet goods are somewhat more buffered because they are used in specialty applications like sterile hospital environments.
Ceramic tile is also losing share to LVT, but because it is constantly reinventing itself and broadening its applications, it has fared much better. Traditional ceramic floor tile producers are increasingly adding thin gauged tiles, outdoor pavers, innovative wall tiles and even countertops to their offering mix. And ceramic’s performance attributes and design capabilities ensure that it will remain essential in the market.
However, the tariffs on Chinese goods in September 2018 and the massive countervailing duties imposed in September 2019 have effectively decimated imports of Chinese tile. A lot of that tile goes to the residential market, but a good deal goes through distribution for lower-end utilitarian commercial applications. Import figures from 2018 and 2019 indicate there was some inventory building in late 2018 as the initial tariffs were being assessed, but the major blow came in the fourth quarter of 2019, when imports fell by 90% from Q4 2018.
Hardwood and laminate flooring have only a small share of the commercial market, primarily due to performance limitations, the most important of which is moisture susceptibility. Designers want to use hardwood because they value authentic architectural materials, so it is regularly specified at a low level. One firm that is banking on growing demand for authentic materials is Shaw, which introduced a commercial hardwood line at NeoCon 2018 that the firm says has gained rapid acceptance. Mohawk also recently came out with a line.
The corporate sector is the biggest piece of the commercial market, and it is an essential market for almost every commercial flooring producer. Last year, demand within the corporate sector was flat to up a hair, by most accounts. It’s a sector where hard surface is taking share from carpet, and concrete is still strong. And it increasingly uses a wide variety of flooring options to create the various environments within mostly open, flexible workspaces.
Most manufacturers report that they experienced growth in the education sector, in both K-12 and higher education. K-12, which relies largely on public funding at the state and municipal level, was more active than higher education among the top flooring producers. Low endowment returns have held back growth in higher education.
Multifamily slowed last year but still showed some growth. Government work was hit or miss, with some manufacturers reporting gains. And religious projects were down overall.
Hospitality business was up last year, with more of the gains on the hard surface side. And with hospitality as broadloom’s strongest commercial market, volume in that sector helped stem broadloom’s losses.
Healthcare, which includes acute care, medical office building and senior living, showed growth last year. The U.S. healthcare model is in the midst of a long-term retooling, upgrading obsolete operations and shifting to regional clinics. And senior living has been a growing sector for years because of the growing population of older citizens.
The retail sector was down last year, though some flooring producers with national accounts ended up with gains. However, the shift in consumer buying habits toward online purchases, likely accelerated by the pandemic, has made retail the most vulnerable model in the commercial market, and the sector is slated to continue to shrink.
2020 AND BEYOND
Due to issues like longer timelines, funding appropriation and scheduling, the commercial market has not yet ground to a halt from the pandemic as much as it has in the residential replacement market. At a reduced rate, business is still going on for most commercial flooring producers. They’ve got product rolling off their lines, they’re having virtual meetings with stakeholders, and flooring is being specified and installed. It varies somewhat state by state, but many projects in the pipeline when the virus hit are still being continued in some form.
Looking ahead, though, the impact on the commercial market will grow more severe and its return to normal will likely be more challenging than the residential ramp-up. The American Institute of Architects’ most recent Architecture Billing Index (ABI) shows that in April the score fell to 29.5 from an already dismal 33.3 in March, the steepest decline on record. The ABI is an economic indicator for non-residential spending nine to 12 months ahead, with scores over 50 indicating increases. February’s ABI was 53.4, and it had been in positive territory since August of last year. To put these numbers in context, they generally range from 47 to 53, so there’s little doubt that commercial projects will be taking an unprecedented dive unless this index bounces back in the next couple of months.
Not all commercial sectors will be impacted equally-while the hospitality sector, for instance, has taken the earliest and hardest hit, other sectors may not fully contract for months-and it’s too early to tell what the biggest challenges will be.
Suffice it to say that every aspect of the process of completing projects comes with a big question mark: the state of funding for public projects; the condition of state budgets and the federal budget; demand in general; changes in priorities; supply chains and the ability to get materials; rising costs for some materials; labor issues; the state of international trade; and perhaps most significantly, the ways in which built environments may evolve to accommodate cultural, behavioral and clinical impacts of the pandemic experience.
In short, no one knows what will happen because the course of the pandemic itself is the primary influence on all these moving parts. Will a vaccine put COVID-19 permanently in the rearview mirror? And if so, will it take a year or two or more? Each scenario yields a different world. And all are in some way different from the one we have left behind.
For a close look at the Top 15 Specified Carpet manufacturers and Commercial Hard Surface manufacturers, see the June 2020 issue of Floor Focus Magazine.
Copyright 2020 Floor Focus