Principia’s recent analyses and reports on, Commercial Insulation 2019 and Commercial Roofing 2019, examined how the number of new buildings constructed, the average building size and current building age is likely to impact future demand.
How is new commercial construction changing?
Principia’s proprietary commercial buildings database shows that prior to the recession, 70 to 80 thousand new buildings per year were being built and since the recession, that figure has been about cut in half as shown in Figure 1.
Industry participants will note that put in place spending on commercial construction has increased and potentially question how this is reflected in new buildings data. A countervailing trend to the decrease in number of new buildings is the size of new buildings which has been on a continuous increasing trend since before the recession as shown in Figure 2.
Figure 2: Average Size of Commercial Buildings 2001–2018
At the same time, the cost of construction (on a $ per square foot basis) has increased dramatically each year, and in fact is the single largest contributor to the increase in commercial put in place spending. In actuality, the total new square footage of building space that has been added each year since 2015 has increased at just under 6% per year. Moving forward, Principia projects that commercial building area averages will continue to increase, while the number of buildings decreases slightly so the net effect will be that total building space added each year will remain relatively flat as shown in Figure 3.
Figure 3: Forecasted Commercial Building Size and Number of New Buildings, 2015-2021
What’s “new” in old buildings?
With respect to replacement activity, there is quite a bit of potential for building products suppliers. Figure 4 shows that nearly 90% of existing commercial buildings are more than 15 years old and 48% are greater than 50 years old. This presents great opportunity for both routine life cycle replacement of products like roofing (and roof insulation) as well as retrofit to bring products up to code when redesigning or repurposing. For example, adaptive reuse of commercial building space will require buildings to be brought up to code and less than 20% of commercial building stock were built when energy codes even existed. Commercial building products manufacturers and suppliers should monitor the repair and remodel segment of the market closely.
Figure 4: Age of Commercial Building Stock, 2018
What does this mean for commercial building product suppliers?
In order to consider the impact of these trends on building products suppliers, dealers and installers, we have to look at the balance of demand in each category. Figure 5 shows that both commercial roofing and commercial insulation are most heavily dependent on existing building product replacement to drive demand. For both product categories, age and weather-based roof replacement is a key driver (roof insulation frequently gets replaced with the roof).
Figure 5: Percent of Demand Volume in New or Replacement, 2018
So, what does all this mean for commercial roofing and insulation suppliers. We’ve highlighted some of the key takeaways below:
- 11% of commercial buildings today are in the 16–25-year age bracket—the age at which a building is most likely to need a new roof.
- Reroofing drives demand and has historically represented 70-80% of total roofing demand; overall reroofing spiked to 86% in 2018.
- Favorable financing options such as (C-PACE) for improvements increase a building’s energy performance which is expected to help motivate property owners
- Less than 20% of the commercial building stock was built in an age when energy codes even existed.
- Older buildings that have fallen out of use are good candidates for adaptive reuse but require the building’s insulation be brought to current code.
- Adding insulation also has the potential to deliver better acoustics, reduce noise pollution, improve fire protection, and improve tenant comfort in older buildings.
Principia’s Commercial Roofing 2019 and Commercial Insulation 2019 provide roofing and insulation manufacturers and distributors a comprehensive market-based source of information to understand current industry trends and dynamics in the North American commercial roofing and insulation markets. These new data products provide additional insight to industry shifts and how manufacturers can adapt. Each of these data products include information about commercial buildings size and age, and the impact of these factors on the commercial building products industry.