Commercial Market 2022: In 2022, the commercial flooring market grew by double digits in dollars and single digits in volume - June 2022
By Intrduction by Darius Helm; Statistics by Market Insights
Last year, the U.S. commercial flooring market grew by 11.7% to an estimated $6.645 billion, according to Market Insights, including both specified and mainstreet commercial sales. Hard surface, which makes up 48% of the market, grew by 12.5%, while commercial carpet was up comparably at 11.0%-specified carpet alone was closer to 11.5%. However, carpet’s revenue growth was largely due to several rounds of price increases last year-it was actually slightly down in volume, while hard surface was up.
While many of the pandemic-driven challenges, like container costs, port delays and raw material bottlenecks, stabilized over the course of the year, inflation and high interest rates remained an issue and the Russian invasion of Ukraine created volatility in European economies and drove up energy costs-most notably natural gas.
This year, more moderate growth is expected, likely low single digits, according to several industry experts. There is hesitation in the market, interest rates are still high, and there’s no clear picture yet of the work-from-home (WFH) effect.
The year started stronger than it ended, but each market segment had its own trajectory. The slowest and most uneven growth was in corporate, the largest segment in the commercial market-and the one most impacted by the WFH effect.
The impact of remote working is still unclear, and there are more questions than answers. For instance, could a standard WFH model emerge, like three days in the office and two at home, or will every business be different? Will the trend be toward more remote working or less? If CEOs get their way, it will be less. How should commercial interiors be reconfigured (or shrink) to adapt to this new work model? How do these changes impact product design? What will be the impact on commercial real estate? And what is the spillover effect to local economies with more workers eating lunch in their kitchens and shifting the use of energy and resources from the workplace to the home?
While some players report doing well in the corporate segment last year, most felt that this segment underperformed compared to the rest of the market. And so far this year, it seems to have slowed even more. In general, it seems that the slowest part of the market was large projects. And a lot of the corporate jobs were driven by the need to repurpose workspaces, to both accommodate flexibility needs surrounding remote work schedules and also to create workplace environments that are welcoming-inclusive spaces, collaborative spaces, relaxing spaces, etc. “People need a reason to come to the office,” notes Shannon Cochran, Patcraft’s vice president of marketing and design.
This pressure to reconfigure and remodel puts a lot of older buildings at a disadvantage. They may not have the amenities or the space flexibility to attract companies and appeal to employees. Mike Gallman, president of the Mohawk Group, points out that there’s a lot of commercial debt coming due in the next 24 months that will have to be refinanced at higher rates. How much default is out there?
By contrast, most of the other commercial segments posted healthy gains. Education has been strong, mostly on the K-12 side. During the pandemic, local governments built a war chest, and that has helped drive education, says Jeff West, Shaw Contract’s vice president of commercial marketing and product development. Higher education has been more hit-and-miss, and many colleges are still regaining their equilibrium after Covid disruptions. K-12 continues to grow this year.
Senior living has been another strong segment, driven by the high volume of retiring Baby Boomers. And there’s been some reconfiguring in senior living spaces, as well, due to the higher risk factors of its clientele. Meanwhile, the other side of healthcare-hospitals, clinics and medical office buildings-has also been in growth mode.
Retail was another bright spot, with some gains among large chain businesses and some churn as other chains shut down locations. Retail is a segment currently grappling with how to reinvent itself to offer an appealing alternative to online shopping. Most people think that brick-and-mortar stores need to offer an experience, and that can range from something as abstract as being moved by the design or the shopping experience to something as literal as engaging in interactive games and activities.
The multifamily segment had a strong year in 2022, driven by both price inflation and increasing demand due to home ownership moving out of the affordability range for many people. So far this year, it looks like conditions are normalizing, but there are still plenty of opportunities for growth and a lot of demand for affordable housing.
One of the strongest sectors was hospitality, which gained momentum as the year went on, and for many manufacturers, it’s the strongest segment this year, with activity in resort properties outpacing business travel properties, and renovation outpacing new construction.
FLOORING CATEGORY UPDATE
Last year, carpet accounted for 52% of commercial flooring sales, about on par with the previous year. But in units, carpet lost more ground to hard surface flooring, mostly to LVT.
As has been the case for several years, carpet tile dominates broadloom in the commercial market, accounting for over 75% in dollars and about 60% in units, since a lot of that broadloom is clustered at the lower end. The bulk of broadloom goes to the hospitality market, with lower-cost products in guest rooms and pricier products in public space. And even in hospitality, carpet tile continues to take share. Broadloom also has a relatively strong position in the tenant improvement side of the corporate segment, as well as in the mainstreet market-where carpet tile can’t compete with entry-level broadloom pricing.
In terms of fibers, it’s mostly nylon 6, with the big mills doing their own extrusion. With the big nylon 6,6 player, Invista, out of the picture, independent fiber producers have had to step up their game. Ascend makes white dyeable nylon 6,6, and it also sends 6,6 polymer to Universal Fibers for solution-dyed fiber. Universal also produces nylon 6. And the other major player is Aquafil, and it serves the U.S. commercial market with both virgin and 100% recycled Econyl nylon 6.
Off the record, many in the carpet industry feel that the future of nylon 6,6 as a face fiber is in doubt, and they aren’t optimistic that there will be much investment by the independent fiber producers in nylon 6,6 equipment and capacity. Experts don’t dispute that nylon 6,6 is ultimately the best-performing fiber out there, but it’s more difficult to spin, adding to its cost, and, importantly, it can’t compete with nylon 6 in terms of environmental sustainability.
Over the last couple of years, mills that were using Invista’s Antron fiber had to hustle to convert all their existing styles to other yarn systems or retool their offerings. Mills report that these conversions are largely in the rearview mirror now, but it was grueling getting there.
There’s also wool, a niche product that is holding its own at the higher end of the market. And now, PET is starting to test the waters. Engineered Floors is using it in its Pentz mainstreet line as well as its contract brands, in both carpet tile and broadloom. Mohawk is doing the same. There are many skeptics concerned about performance and resilience, and they also question whether PET can offer the range of effects available in nylon. It’s worth noting, though, that soft-surface hybrid products, like Engineered’s Kinetex and Shaw’s ReWorx, are made entirely of PET. Kinetex has been used for years and, according to the firm, has excellent durability.
In terms of hard surface, LVT continues to drive gains. The vast majority is gluedown flex LVT, due to the higher performance requirements in the commercial market, as well as the conservative approach to product selection among specifiers, who have to answer to a much wider range of stakeholders than on the residential side, where the homeowner is often the only stakeholder. Looselay flex LVT also has a strong position in the commercial market, which, along with thicker-gauge gluedown products, is designed to be installed with carpet without a transition.
Last year, sheet vinyl also performed well, not because it’s suddenly trending but due to growth in segments that use sheet, like healthcare and education. In healthcare, sheet vinyl is the go-to in sterile environments, and that’s not likely to change anytime soon.
VCT continues to lose ground to both LVT and polished concrete. VCT’s high maintenance costs have led to a lot of deselection in recent years, and the only manufacturers in North America are Tarkett and AHF Products. Tight budgets have helped drive some VCT business, and AHF reports that business is robust, but in the long run, the category is likely to suffer more erosion.
There’s still a lot of development of PVC-free resilient systems-AHF’s Armstrong Flooring has offered an alternative to VCT using polyester for many years. Most of the other big manufacturers have some form of PVC-free sheet or tile. The challenge for these emerging chemistries is to not only match vinyl’s high-performance attributes but also be comparable in cost. Over the last decade, it seems that half of the PVC-free alternatives introduced to the market end up quietly being discontinued.
Ceramic tile has two key functions in the commercial market. One is performance-based; it’s the flooring of choice for wet environments, from restrooms to commercial kitchens. Ceramic for these types of applications range from entry-level tile (of which there is a lot) to products with elevated design, and they all meet the necessary performance requirements. Ceramic’s other function is as a statement piece, like dramatic marble looks on lobby floors or large wall expanses. In recent years, the ceramic tile industry has made great strides in developing these sorts of products. Its thin gauged panels have transformed the market, and the focus on design innovation keeps this flooring category-the oldest flooring category in the world-fresh and relevant.
Another growth category is outdoor flooring, including 2cm pavers and slip-resistant tiles that match indoor tiles for seamless indoor/outdoor transitions.
Most industry experts expect the commercial market to grow at a slower rate this year. Some question whether there will be any growth, but most expect low single-digit gains. Corporate is expected to continue to hold back overall commercial growth.
K-12, hospitality and healthcare are likely to continue to grow this year, as is senior living. But economic conditions, including inflation, high interest rates and some remaining issues with supply chain constraints, are still holding back major investment. Global instability has also put a lot of projects on pause. And labor restraints here in the U.S. are still hampering the smooth operation of commercial enterprises.
The American Institute of Architects’ Architecture Billings Index (ABI) is one of the best indicators of what to expect in the commercial market. In terms of flooring, there’s a lag of nine months to a year (or longer) between ABI numbers and projects getting started. In early 2021, ABI numbers started to move into positive territory (over 50) after a dismal 2020, which hit an unheard of low of 29.5 in April of that year.
Numbers stayed in positive territory all the way into October of last year, when they fell to 47.7. And despite a slightly positive blip in March of this year (50.4), the index has stayed on the negative side. In April, it retreated to 48.5, with only one region, the Midwest, on the positive side.
Commenting on the results, AIA chief economist Kermit Baker said, “The ongoing weakness in design activity at architecture firms reflects clients’ concerns regarding the economic outlook. High construction costs, extended project schedules, elevated interest rates and growing difficulty in obtaining financing are all weighing on the construction market.”
One silver lining is that the slowdown in construction is reducing pressure on costs and schedules. Also, A&D firms are reporting an increase in inquiries into new projects, which could point to a healthier 2024.
For a close look at the Top 15 Specified Carpet manufacturers and Commercial Hard Surface manufacturers, see the June 2023 issue of Floor Focus Magazine.
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