Europe HVAC Market - Industry Outlook and Forecast 2023-2028

The Europe HVAC market was valued at USD 61.26 billion in 2022 and is expected to reach USD 86.49 billion by 2028, growing at a CAGR of 5.92% from 2023-2028. The market is undergoing tremendous modifications due to the increasing integration of IoT technology with HVAC products, making them more innovative and accessible. The emphasis on connecting several sensors within building ecosystems, including HVAC, has grown for achieving energy efficiency.

The growth of infrastructural construction is set to speed up significantly post-2021. These infrastructural projects in Europe are estimated to reach a total investment of about USD 14.8 trillion, expected to be completed by 2040, creating a massive demand for HVAC at these locations in Europe, further propelling the growth of the Europe HVAC market. In 2022, European countries witnessed drastic climate changes throughout the year. Rising temperatures and heat waves have increased HVAC systems in commercial and residential buildings to control indoor climate conditions. Hence such factors propel the sales of the HVAC systems in the forecast period.

Further, because of the highly competitive industry, R&D investments in the Europe HVAC market are limited and have substantial investments, mainly from prominent vendors. Moreover, the short time-to-market and narrow acceptance of new technologies add to the challenges for HVAC vendors. R&D investments are primarily on cost reduction of the production process and improvement of the existing product technology for value addition instead of developing new products.

MARKET TRENDS & DRIVERS

Replacement of Existing Equipment with Energy Efficient Product
In 2020, there was the steepest decline in the commercial sector due to the hard-hit hotel & motel industry and sports & convention centers. The commercial sector has been witnessing constant growth since 2021 with the reopening of the economy. Energy-efficient HVAC technologies for residential and commercial buildings have the potential to provide environmental and economic benefits in the Europe HVAC market. Optimizing energy-efficient HVAC technologies and proper installation planning helps to reach energy-saving potential by up to 40%. Therefore, replacing existing equipment with energy-efficient HVAC technologies will boost the growth of HAVC systems in the upcoming year.

Growing VRF Systems
VRF air conditioners are one of the fastest-growing multi-split air conditioners. Variable Refrigerant Flow (VRF) HVAC systems consist of outdoor units connected to various indoor units via refrigerant piping to give cooling and heating to individual zones. VRF system installations are increasing in European countries, with urban areas being the major demand generators, especially the commercial sector.

In Germany, centralized air conditioning solutions are growing in demand through chillers and VRF systems. However, in many places, VRF systems are replacing chillers. VRF sales are expected to rise in tune with global trends as they help save operational costs. The UK industry is strongly connected to the business trends of Europe and driven by construction activities in London. Hence, the VRF system will play a vital role in the Europe HVAC market.

SEGMENTATION INSIGHTS

INSIGHTS BY EQUIPMENT
HVAC commonly refers to heating, ventilation, cooling, collective heating, and cooling technologies used at commercial, residential, industrial, and public utility buildings. The Europe HVAC market can be divided into three categories based on functionality: heating, ventilation, and air conditioning. The Europe HVAC market in heating equipment is growing at a CAGR of over 6% during the forecast period. The heating equipment industry is characterized by intense competition, as the same has high traction in the cold climatic conditions of the region. The heating equipment is generally bulky; hence, the industry is characterized by many local/domestic vendors. Moreover, the service and maintenance required for these tools also bring in high revenue.

The air conditioning industry is characterized by the presence of many domestic and multi-national vendors, and the industry is seasonal in nature and characterized by modern technology. The CAC and RAC constitute a significant part of air conditioning. The Europe HVAC market in air conditioning was valued at USD 22.66 billion in 2022. France, Germany, Italy, the UK, and Spain are Europe's most prominent demand generators in the category and are expected to witness growth during the forecast period.

INSIGHTS BY APPLICATION
The Europe HVAC market by end-use can be categorized as residential and commercial sectors. The residential sector demand in 2022 is expected to grow due to the construction industry skyrocketing in European countries. The demand for new equipment and replacement is expected to be impacted as consumers seek to cut down on non-essential purchases. Europe HVAC market by residential sector is growing at a CAGR of 5.43% during the forecast period.

The commercial sector involves the use of HVAC for larger spaces. The Europe HVAC market by commercial sector was valued at USD 25.12 billion in 2022. The commercial sector affordability is high and is mainly driven by higher lifecycle costs and energy efficiency. The demand for newly constructed buildings is expected to take a hit, as the COVID-19 spread has adversely impacted the project timelines.

REGIONAL INSIGHTS

Several countries in Northern and Central Europe have been filled with harsh cold weather for almost all the year. Changing weather conditions and poor air quality maintenance are significant factors in the growth of the Europe HVAC market. The Western Europe region held the most important of Europe’s HVAC market share and was valued at US 34.26 billion in 2022. From a demand perspective, air conditioning systems lead the industry in Western Europe as the temperature rise in urban cities because of pollution, urbanization, and other similar factors.

The HVAC industry in Central & Eastern Europe was valued at USD 8.65 billion in 2022; the region’s industry is driven by both heating and air conditioning systems. The installation is becoming very common in CEE countries. The new HVAC technologies are being adopted as they are energy efficient and eco-friendly. The air or water heat pumps have shown impressive growth as traditional boiler units in the CEE countries. The market characteristics vary across CEE, and the demand for the equipment changes accordingly. The growing middle-class purchasing power and private investments in the construction sector are the major driving factors in the HVAC industry in Central & Eastern Europe.

COMPETITIVE LANDSCAPE

The HVAC industry, prior to the outbreak of COVID-19, was undergoing a transition, mainly on three fronts – regulations, technological upheaval, and the construction industry rebound in many countries. Post the COVID-19 outbreak, the industry is witnessing financial turmoil. The need for efficient HVAC has increased in the region, primarily driven by EU directions, objectives, and targets. The presence of many market participants in each country and equipment category characterizes the Europe HVAC market. The industry is a beneficiary of the government's large incentives to the end-users in tune with government objectives of meeting carbon emission targets and other climate change control measures.

One of the key players in the Europe HVAC market, Systemair’s ventilation products and systems are marketed under brands such as Frico, Fantech, and Menerga. Menerga is one of the leading brands in the region for air handling units in the segment comprising swimming pools, precision ventilation, and industrial applications. Germany is the largest European industry for Menerga’s products, and Frico offers airborne heating and air curtains in the region. It provides solutions for the indoor climate in residential and commercial sectors. Further, the Europe HVAC market is highly fragmented, and high competition is witnessed in the region due to regional, national, and local players. Therefore, Johnson Controls focuses on developing effective designs of HVAC systems in the residential and commercial sectors at effective price ranges to have a strong foothold in the industry.