19 Nov 18 Global Residential Renovation: A huge untracked opportunity?

Much of the world’s building stock is in need of renovation. In the EU for instance, the renovation or demolition rates have been quite low compared to the rate of new construction. According to a report published by the European Parliament, in eight EU countries, the average annual demolition rate was about 0.1%, with the annual new construction rate between 1% and 1.5%. However, this scenario is expected to change. For the first time since 2014, the EU renovation sector is expected to witness stronger growth than new construction by 2020.

In other parts of the world, too, the renovation market is poised to be the next big focus area for the construction industry. In the US, the residential remodelling expenditures in 2019 are expected to reach its highest level in a decade (nearly US$50 billion), according to the Joint Center for Housing Studies of Harvard University. Australia has also witnessed a surge in renovation projects and in the next five years until 2023, the country is projected to realize renovation projects to the tune of nearly $35 billion, as per Master Builders Australia.

There are two key influencing factors:

1. In developed economies, shortage of fossil fuels and the need to reduce CO2 emissions have influenced countries to tighten their energy efficiency requirements and thermal performance.
   – These factors are resulting in newer regulations directed towards better energy efficiency.
   – Further resulting in a growing demand for green or energy efficient or light-weight construction products, which have to comply with the evolving building codes in many developed nations.
2. On the other hand, in fast growing / developing economies, rapidly growing urbanization rates are triggering massive growth in the demand for housing. In parallel, renovation is being driven by rising living standards.

Renovation entails varying degrees of activities ranging from minor repairs to limited upgrades (which include specific replacements, installation of heating, re-wiring, insulation, etc.) and major / comprehensive upgrades (such as extension work, conversions or complete refurbishment).

Today a large percentage of construction products are sold through distributors into small projects. These sales are not often tracked and building product manufacturers have limited knowledge of who buys them and for what purpose. As a result, many firms historically have resorted to business planning largely on the basis of new construction statistics (which is relatively easy to get hold of). However, a majority of the product sale is actually triggered by the demand from the renovation / remodelling segment, which forms a big chunk of the pie. Many companies are unable to build a robust strategy for renovation due to lack of data – and generally adopt a reactive approach.

Instead of relying heavily on sporadic inputs from distributors, building product companies must invest in understanding the decision-making process and buying behaviour of home owners, architects (if involved), and builders/artisans.
– How do they choose what materials to use?
– How do they inform themselves?
– How strong is the influence of brand on choice?
– How strong an influence does a distributor have on choice?

In fact, such intelligence could also provide critical insights around product development and pricing strategies across different customer segments and regions.