Commercial: Carpet tile, LVT provide momentum in recovering market

July 02, 2015

June 29; Volume 30/Number 1

By K.J. Quinn

Innovation and changing dynamics are impacting flooring choices in the commercial market, and key economic indicators are finally pointing in the right direction. According to industry experts, sales grew in 2014 across certain commercial segments for tScreen Shot 2015-07-02 at 4.03.12 PMhe first time since the recession. Carpet tile and luxury vinyl tile (LVT) were the shining stars as the A&D community covets both products for their durability, maintenance and design profile.s

Several business trends positively impacted commercial flooring sales last year. Unemployment levels declined while CEO corporate confidence—which helps drive capital spending—rose, according to published reports. New construction work and the architectural billings index, the pipeline for specified contract projects, increased over the previous year. “I think the industry is finally seeing some growth and it’s really coming from those indicators,” noted John Wells, president, Interface Americas.

Carpet remains the leading category in commercial, growing to between 3% and 3.5% to approximately $3.88 billion in sales and 2.33 billion square feet, according to FCNews research. The category commands an estimated 59% share of total commercial flooring sales and volume, with 80% of the business derived from specified contract work and the remainder from Main Street applications. Carpet or modular tile surpassed broadloom as the headliner, representing roughly 52% of category sales and growing more than 10% last year.

“At some point broadloom sales have to level out, but it may have a little further to go,” said Ralph Grogan, president and CEO, Bentley. “I think carpet tile will represent 75% of the market and broadloom about 25% a couple of years from now.” Increased design options, formats—such as planks, hexagon shapes and large tiles measuring 36-inches and more—helped carpet tile grow at a much faster rate than broadloom.

Sales varied by end use, experts reported, as different specification issues affected growth rates across key sectors such as corporate, education, health care, retail and hospitality. For instance, in the specified contract business, broadloom remains a viable flooring choice in budget-conscious bedrock segments such as health care and education (K-12). New styles enabled the product to expand into areas that prefer high-end woven carpets, such as hospitality.

Average uninstalled pricing for commercial soft surfaces is creeping up, moving at approximately $13 to $14 per square yard nationwide, according to industry estimates. “I think that move in price points demonstrates the shift to better quality products,” Wells noted. “Carpet tile is being [specified] for a higher price per square yard, which is also helping drive up the overall price.”

Carpet tile, however, is not the end-all product for commercial flooring applications. “There are still some things you can’t do in carpet tile, like creating certain looks and finishes, where broadloom is a better solution,” noted Michel Vermette, president, Mohawk Commercial and International. “Carpet tile is taking the middle part of the market and I would say broadloom is taking the entry level and higher price points with better and more sophisticated aesthetics.”

Hard surface

Hard surface grew approximately 2% to 4% to reach approximately $2.69 billion in commercial sales, according to research. Statistics for ceramic are difficult to pin down as distribution is fragmented, but FCNews estimates 2014 category sales rose about 4% to around $714 billion. Roughly 60% to 70% of all hard surface commercial sales are derived from specified contract, while the rest comes from Main Street work.

“Tile demand in the commercial market is an area we can count on for growth, spurred by office and commercial construction and an increased use of tile as a low maintenance and sustainable flooring option,” said April Wilson, director, brand marketing, Dal-Tile.

Resilient (vinyl) represents about 17.5% of 2014 sales in dollars. The pacesetter is LVT, which is growing at a much faster rate and moved approximately 257 million square feet into the commercial market last year. While wood visuals remained popular, design trends are moving toward more unique visuals from concrete and stone rectangle shapes.

“You are seeing all sorts of LVT shapes, sizes and visuals, especially in the commercial market,” noted Scott Sandlin, vice president, hard surfaces, Shaw Floors. “In addition to design flexibility, LVT’s appeal includes durability, performance and maintenance ease.”

While VCT is the top resilient floor in units—approximately 550 million square feet were sold last year—this position is tenuous as it continues losing market share to LVT. “VCT has a strong place in many segments and applications,” observed Dominic Rice, vice president and general manager, Armstrong Commercial North America Floor Products. “But the size of the VCT market is considerably lower than a number of years ago.”

Hardwood and laminate combine to represent about 10.5% of hard surface commercial sales and 3.5% of total commercial sales, a figure comparable to 2013. Wood accounts for nearly twice as much revenue, and sales activity varies by end-use sector, fetching higher price points than laminates. Plus, laminate applications are limited in the commercial market, namely because the product is unsuitable for areas with heavy foot traffic, experts explained.

There are numerous factors affecting growth for hard surface in the commercial market. Many center on advances in aesthetics, performance, ease of installation and maintenance while others are based on floor design trends. There is also a greater understanding within the A&D community on what goes into certain hard surfaces. Concerns regarding sustainability and meeting LEED building requirements have been greatly reduced as more flooring producers list environmental and health data, meaning product claims are transparent and verifiable.

Rubber continues to be a mainstay product for education and health care, industry members said. Sales performance mirrored how commercial flooring fared in these core segments, with minimal growth in 2014. “Where we’ve seen some growth in rubber is outside traditional segments,” said Jeff Krejsa, senior vice president, Tarkett. “It’s largely driven by aesthetics; the durability and maintenance benefits are understood.” Rubber producers note life cycle replacement data proves the product actually costs less over the long haul because it lasts longer.

Screen Shot 2015-07-02 at 4.03.24 PMLike rubber, linoleum has carved a niche into education and health care, two segments which up until about three years ago represented an estimated 80% of its business. Now that figure is closer to 60% and coming off a year where growth was flat to modest at best, according to industry estimates. “As a category, linoleum is kind of struggling to find its new position,” Krejsa observed. “It needs to get in tune with some other trends happening in other resilient categories and carpet, related to shapes, sizes and planks.”

While linoleum remains one of the most sustainable floor coverings, that is no longer good enough. “One of the biggest fallacies about linoleum is it’s green and that’s what drives it,” said Denis Darragh, general manager, Forbo Flooring. “That’s not really the case, which can open a lot of doors for discussion. It’s the best performing resilient floor for durability and long-term use.” The category posted about $75 million in sales last year, estimates showed.

Corporate

If there is one segment that reaped the benefits of an improving economy, it was corporate office work. It represents more than 40% of commercial flooring sales and grew over 10% last year, FCNews research found, making it the largest and fastest growing sector. An uptick in new office construction, expansions and renovations from landlord dollars, coupled with double-digit sales growth for many corporations that occupy these facilities, continue to stimulate demand.

Carpet tile overtook broadloom as the top flooring choice in office interiors, representing an estimated 52% market share, according to industry estimates. As aesthetics, styles and formats evolve, the product is gaining further acceptance in workspaces demanding style and as a tool to create warmth and hospitality in cafeteria and break areas.

“Corporate continues to further migrate to carpet tile as it offers many advantages over broadloom,” said Rob Cushman, Bolyu’s executive vice president, marketing and design. “Its modular design allows easier material handling. It is easily transported up and down elevators, occupied environments are much easier to renovate, catastrophic damage is easier to replace, and attic stock is much easier to store and handle.” Broadloom remains preferable for budget-sensitive projects and high-end applications.

Hospitality

Similar to corporate, hospitality experienced double-digit growth last year, anywhere from 10% to 15%, according to industry estimates. As the economy improved, both business and leisure travel returned to pre-recession levels, which helped stimulate new construction and remodeling of hotels. “The hospitality sector has been leading in all categories in terms of commercial sales growth,” Dal-Tile’s Wilson said.

Mid-range and upscale hotel brands have projects ongoing, and the rate has picked up since the recession. While their locations feature a consistent level of performance standards associated with their brands, floor designs are being influenced by architecture and regional design preferences. This helped fuel an increasing blend of hard and soft surfaces as hotels attempt to create unique, inviting interiors with high performing, easily maintained products that can stand up to heavy traffic demands.

Hard surfaces such as resilieScreen Shot 2015-07-02 at 4.03.33 PMnt are used in low-end and mid-range applications while hardwood and ceramic tile are preferred for higher-end settings due to their durability and realistic aesthetics. Carpet remains the top-selling product, as broadloom is found predominantly in guest rooms, hallways and certain public areas.

Education

The education market—a sector consisting of schools for grades K to 12 and higher education —was essentially flat last year, although government funding for several public school building projects opened up while colleges and universities invested in renovations as they try to attract more students. “Education growth is slower relative to the rest of the market, especially in K-12,” said Brenda Knowles, vice president, commercial marketing and product development, Shaw Industries. “This is in large part due to constricted funding at the state and local levels.”

Educational facilities utilize a mixture of flooring products to support a wide array of activities. Carpet and resilient are often used to add warmth and comfort underfoot in classrooms, media centers, offices and collaborative learning spaces. VCT has long been installed in schools and colleges thanks to its durability, low installed cost, easy maintenance, fresh patterns and bold colors. But LVT and carpet tile continue making inroads at the expense of VCT as life-cycling costs more in budget-sensitive public school systems are factored into flooring specifications.

Retail

In a market renowned as “hit or miss” every year, retail was certainly a hit in 2014. Commercial flooring sales rose about 7% as capital investment and renovation plans for large retail chains and local businesses postponed during the recession were finally implemented.

Ceramic tile and carpet are often specified in high-end spaces while resilient and rubber flooring are utilized in other public spaces. Retailers specifying carpet are doing so largely because of its value proposition, including sound-deadening, aesthetic and low maintenance qualities, industry members said. “Acoustics are a big issue because the space, in general, whether it’s retail or office, is becoming more raw, with less textiles not just on the floor but on verticals and ceilings,” Interface’s Wells noted.

Health care

The health care sector experienced a slowdown through much of last year as commercial flooring sales growth was moderate at best. The uncertainty surrounding the impact of the Affordable Care Act on reducing revenue streams—the result of health care providers being reimbursed for outcomes instead of services provided—reportedly limited renovation spending. But in Q4 the purse strings began to loosen as spending levels for renovation work rose and millions of dollars were reportedly invested into building large medical facilities nationwide.

“Health care is growing, with more ahead simply due to demographics,” Shaw’s Sandlin said. “Within the health care market, there are multiple sub-sectors, with senior living driving much of the growth.”

The health care sector maintains a broad flooring need as it is spread across assisted living facilities, hospitals/clinics and medical office buildings. For example, low-density carpet and ceramic are used in corridors which help patients walk and maneuver rolling equipment, walkers and wheelchairs while providing smooth transitions and slip resistance. Modular carpet is also a good choice in these spaces due to its sound control and hygienic properties.

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