In recent years, the landscape of commercial building construction in the United States has been undergoing a significant transformation. While the construction of new buildings has slowed down, the trend of retrofitting existing structures is gaining momentum. This shift is not just a fleeting trend but a substantial change that is reshaping the industry, particularly the Building Automation Systems (BAS) sector. In this article, we'll explore the reasons behind this shift, the implications for the BAS industry, and what the future holds for commercial buildings in the U.S.
Decline in New Commercial Building Constructions
Despite robust construction spending across most nonresidential sectors, signs of a broader slowdown have emerged. By late 2023, construction starts had either significantly decelerated or shifted into negative territory in nearly every category. According to ConstructConnect, the value of nonresidential building starts rose by only 2% during the first 11 months of 2023 compared to the same period in 2022—a clear indication of a cooling trend in the industry. This decline is not limited to a single sector but spans across various types of commercial buildings, including offices and hotels.
Several economic factors contribute to this slowdown:
- High Interest Rates: The Federal Reserve's efforts to combat inflation have led to higher interest rates, making borrowing more expensive for developers. This has resulted in a cautious approach to new investments.
- Economic Uncertainty: The lingering effects of the COVID-19 pandemic, coupled with geopolitical tensions and supply chain disruptions, have created an environment of economic uncertainty. Businesses are hesitant to commit to large-scale construction projects under these conditions.
- Material Costs and Supply Chain Issues: The rising cost of construction materials and ongoing supply chain challenges have further complicated new construction projects. These factors have increased project costs and extended timelines, making new builds less attractive.
- Shift in Demand: The pandemic has also changed the demand for commercial spaces. With the rise of remote work, there is less demand for traditional office spaces. Similarly, the retail sector has been impacted by the growth of e-commerce, reducing the need for new retail construction.
Rise of Retrofitting in Commercial Buildings
As new construction slows, the focus has shifted towards retrofitting existing buildings. Retrofitting involves updating and improving older buildings to meet current standards and requirements, often with a focus on energy efficiency and sustainability. This trend is driven by several factors, including the economic benefits of retrofitting and the growing emphasis on sustainability.
A report by BASF highlights the economic advantages of retrofitting, noting that it can be a cost-effective way to improve building performance and extend the lifespan of existing structures. Retrofitting buildings can lead to significant energy savings, making it an attractive option for building owners looking to reduce operational costs and environmental impact.
Looking ahead, the trend towards retrofitting is expected to continue growing. Research by JLL indicates that to meet decarbonization targets, the rate of retrofitting needs to triple over the next decade. This prediction underscores the critical role that retrofitting will play in the future of the commercial building sector.
Predictions of Spending on Retrofitting
The financial commitment to retrofitting is substantial. According to McKinsey & Company, an upfront investment of $125 billion in improving the energy efficiency of commercial buildings over the next 10 years can save $290 billion by 2030 and $37 billion annually thereafter. This highlights the long-term economic benefits of retrofitting, making it a financially sound strategy for building owners.
JLL's research further supports this, estimating that in the global north, retrofitting rates need to triple from barely 1% today to at least 3% of existing buildings per year to meet decarbonization targets. This would require an estimated $3 trillion in the office sector alone8. These figures illustrate the scale of investment needed and the significant market opportunity for companies involved in retrofitting and BAS.
Impact on the Building Automation Systems Industry
The shift from new construction to retrofitting has significant implications for the Building Automation Systems (BAS) industry. As more buildings undergo retrofits, there is an increasing demand for advanced BAS to enhance energy efficiency, improve operational control, and provide better occupant comfort.
Retrofitting projects often include upgrades to BAS, as these systems are integral to achieving the desired improvements in building performance. Modern BAS technologies, such as smart sensors, IoT integration, and advanced energy management systems, are essential components of successful retrofit projects. These technologies enable building owners to monitor and control various building systems more effectively, leading to improved energy efficiency and reduced operational costs.
Industry Insights
Industry experts agree that the future of the BAS industry is closely tied to the trend of retrofitting. As more building owners recognize the benefits of retrofitting, the demand for advanced BAS will continue to grow. This presents a significant opportunity for BAS providers to innovate and develop new solutions that meet the evolving needs of the market.According to Acuity Brands, several macro-level trends are driving the growth of the retrofit industry. These include the global sustainability movement, the push towards electrification, and the need for buildings to interact dynamically with the power grid through demand response. These trends are expected to fuel the demand for advanced control solutions and smart lighting systems, which are integral to modern BAS.
Bringing the Old into the Future
The shift from new construction to retrofitting in the U.S. commercial building sector is a trend that is here to stay. This transformation is driven by economic factors, the need for sustainability, and the growing recognition of the benefits of retrofitting. For the Building Automation Systems industry, this shift presents both challenges and opportunities. By embracing the trend towards retrofitting and developing innovative solutions, BAS providers can play a crucial role in shaping the future of commercial buildings.
As we look ahead, it's clear that retrofitting and BAS upgrades will be essential components of the commercial building sector's efforts to achieve sustainability goals and improve building performance. Building owners and BAS providers alike must stay ahead of the curve to capitalize on the opportunities presented by this transformative trend.
About Functional Devices, Inc.
Functional Devices, Inc., located in the United States of America, has been designing and manufacturing quality electronic devices since 1969. Our mission is to enhance lives in buildings and beyond. We do so by designing and manufacturing reliable, high-quality products for the building automation industry. Our suite of product offerings include RIB relays, current sensors, power controls, power supplies, transformers, lighting controls, and more.
We test 100% of our products, which leads to less than 1 out of every 16,000 products experiencing a failure in the field.
Simply put, we provide users of our various products confidence and peace of mind in every box.