Energy efficiency: the future of the heating, ventilation & air conditioning market

Secular tailwinds for heating, ventilation, & air conditioning (HVAC), an industry critical to achieving climate objectives 

Heightened focus on energy efficiency and sustainability is driving a demand shift and increasing government support towards more efficient building systems, which we expect to support outsized growth in heating, ventilation, & air conditioning. Growth will likely be further augmented by several megatrends, including urbanization, demographics, and resource constraints. Over the next decade we estimate a potential ~$100B expansion vs. today's ~$250B global market. Because buildings account for ~40% of CO2 emissions, of which ~70% stem from HVAC, technology will be critical to achieving government/industry carbon reduction objectives—we view large-scale HVAC OEMs as well positioned to provide more environmentally friendly equipment/ systems. In this report we take a detailed look at the opportunities/risks that climate trends mean for the HVAC value chain. Our analysis, leveraging input from 19 UBS research analysts and >15 reports/UBS Evidence Lab studies, suggests an HVAC market opportunity of ~300bps+ (on top of GDP).

We believe HVAC OEMs have 300bps+ above GDP growth opportunity 

More efficient products like heat pumps and variable refrigerant flow (VRF) are gaining momentum globally. Commercial heat pumps, which can be up to ~300% more efficient than a conventional boiler/chiller, are winning share in Europe; residential VRF, although relatively small in North America, is growing faster than the market. We see ~300bps of market growth beyond GDP, driven by megatrends and emerging opportunities in intelligent buildings and IAQ. We also see HVAC OEMs capturing increasing share of the more fragmented service market: in applied services, the new equipment attachment rate is ~40% (running above ~25% for the installed base) and is expected to rise to ~60%, which could drive ~100-200bps of incremental growth for OEMs above the overall HVAC market.

…with significant implications for other sectors too

Impacts from the focus on sustainability will extend across the global buildings value chain. Upstream, chemical producers and compressor suppliers should be positively impacted by changing refrigerant standards. Downstream, changes to overall building design and project specs will impact building developers, managers, and service contractors. Overall, we see continued product innovation and faster adoption as key growth drivers in the evolving landscape. We include relevant sector/ regional outlooks.