By Louis Iannaco
Hicksville, N.Y.—As opposed to their residential counterparts, those whose profit margins and livelihoods depend largely on the health of commercial business enjoyed happy times in 2006. With commercial sales making up just below one-third of total industry sales during the year, the contract business took in approximately $8.24 billion for 2006. This represents an approximate 4% increase over the previous year.

According to research conducted by FCNews, the North American commercial flooring market strengthened in 2006 with construction completions in the office, healthcare and retail segments increasing in nominal dollar terms. Overall, all segments were healthy and growing, with hospitality and healthcare leading the way.

In 2006, the contract side not only picked up where it left off the previous year—moving up—but many of the important sectors continued to show signs they are on their way to rebounding back to where they were prior to the events of 9/11.

Since the devastating terrorist attacks, certain segments of the contract side of the economy either crept forward or slowed to a halt, such as hospitality and corporate. Both began opening up in 2005, and continued on the upswing in 2006.

Corporate profits rose, allowing companies to go ahead with projects they had put off for three or more years. This is a big boost to the industry since the corporate sector represents the largest piece of the commercial pie, and it does not just focus on carpet tile. Hard surfaces, such as wood and ceramic are being specified in more commercial flooring projects.

Hard surface strength

One needs to only visit the exhibitor showcase during the convention for the StarNet Commercial Flooring Cooperative to see the increased use of hard surfaces. Whereas this part of the industry used to be primarily dominated by broadloom and carpet tile, with some resilient thrown in for the break rooms and cafeterias, today there is a wide range of flooring products, including wood, ceramic and laminate.

In hospitality, people began traveling again in 2005 and even more so in 2006 to where the industry was seeing numbers it hadn’t seen since that fateful day in 2001. In fact, airlines accommodated roughly 4-1/2 billion passengers last year (2006). Along with vacationers, business travel also took off. Add to this the wireless Internet boon and many hotels, convention centers and others in the field once again had reasons to upgrade and renovate, something they had been putting off with the slowing of business.

Hospitality definitely seemed to be the strongest commercial market in 2006. It was and continues to be a fairly strong sector, with hotel construction being the driving force. Hotels and resorts of all shapes, sizes and price points—from Marriott to Motel 6—jumped head first into renovating their facilities in order to provide accommodations that were more comfortable and user-friendly.

In addition, there is a lot of renovation going on, as there are many investment groups either selling or buying properties, and, in that process, doing more renovation projects.

Good health = strong growth

Other commercial sectors such as healthcare remained robust. Buoyed by changing demographics and an aging population (as assisted living and senior living are looked at as being part of healthcare), this made for a strong 2006. Not only are assisted living homes still in demand, but also these facilities are opening up as quickly as Lowe’s.

And, like the corporate sector, these businesses are moving away from the sterile, medical-looking environments to a more natural and homey feel. This has opened up the segment to a variety of new and different products.

These are some of the main reasons hard surface manufacturers have had a larger-than-normal presence at the last couple of NeoCon shows. A number of companies, especially from the wood and ceramic sector, have made their debuts at the commercial market in recent years, continuing with the latest edition earlier this month, letting both designers and architects know they have products to meet their needs.

In one of the fastest growing segments in the commercial arena, modular carpet, business experienced extremely healthy growth in 2006. This segment has expanded so much, as high as double digits, many contractors have reported it has shot past broadloom. In 2006, U.S. modular carpet sales grew 18% to $1.316 billion, over 2005 when they were $1.114 billion.

Of the major commercial sectors, education was cited as either remaining flat year over year or lagging [just behind] industry growth in 2006 regarding carpet, while hard surface flooring in the sector continued to make positive strides. At the higher education levels—colleges and universities—endowments are being used to build new facilities such as libraries and art centers, many of which are utilizing more high-end hard surface products.

Biggest challenge

During 2006, the biggest challenge companies experienced was the continuation of raw material increases as well as increases in energy and freight. Persistently high oil and natural gas prices combined with escalating transportation costs and increasing global demand have resulted in unprecedented price escalation for key raw materials.

The prices of oil-based raw materials and energy sources have reached new and sustained high levels. This is borne out by the fact, according to FCNews research, that raw materials and energy costs rose more than 7% in 2006 over the previous.

Falling raw material costs are not anticipated any time soon, sources noted. The situation is not indigenous to the flooring industry, and hard surface flooring continues to be a great value within the commercial sector.

Highlights colored green

Probably the biggest highlight from the commercial sector had to do with the environmental awareness of both firms and the green benefits of their products. The environmental awareness of all commercial carpet manufacturers is at a much higher level than some of the other products that go into commercial interiors, and the industry is beginning to be recognized for that. While there are certainly some companies that have been touting it longer than others, everybody is beginning to understand that it’s not just something to be marketed, it’s a way of life.

While 2006 may not have been a magnificent year for the commercial sector, it was a positive one, especially considering how the industry performed overall. Going forward, it seems as if this growth has spilled over into 2007. And, with increased emphasis on sustainable practices, exciting new opportunities have presented themselves paving the way for even more growth in the future.