The European air conditioning (AC) market has faced a downturn in 2023, and the road to recovery seems distant, with expectations for 2024 remaining subdued. With decrease in Western Europe in 2023 by -2,9% in quantity sales and far more -13% in Central and Eastern Europe countries, the market shrank, according to results of Interconnection Consulting.

The Cooling Off of the AC Market

In 2023, AC sales plummeted across Central and Eastern Europe (CEE – Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Czechia, Greece, Hungary, North Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia), with some companies in countries like Hungary and parts of the Balkans witnessing a huge drop in new sales by over 70%. Even regions that fared relatively better, like Albania, saw only a slight decline of 3.8% in units installed, reflecting the widespread impact of the market slowdown. Overall, the AC market in CEE recorded a total quantity of 1,32 million units and value of EUR 1.145,2 million, with expectations of stagnation in 2024 at 0,6% in value sales. Nevertheless, the market in CEE is projected to reach EUR 1.327,5 million in 2027, according to Interconnection Consulting.

The Western Europe countries (WEU – Germany, Italy, Spain, Benelux, France, UK and Austria) faced in 2023 only modest decrease by -2,9% in quantity sales. Persistent governmental subsidies kept the influence of downturned construction lower on AC market, overall. From WEU countries Austria fell the deepest by -15,4% while on the other side United Kingdom quantity sales changed only by -1,1%. The total quantity sales resulted of 3,5 million units sold and value of EUR 4.945,4 million with expectations of positive change 1,6% of value sales in 2024. Overall, the WEU market is expected to reach EUR 5.727,2 million at the end of forecasted period, in 2027.

Replacement Growing and Global Context

On the other hand, AC market is highly supported by replacement segment, which is increasing its share, due to drop in new constructions. Even replacements in some countries boosted by subsidies help the market overcome the challenging times. The new installation and replacement ratio is 63:37 with further tendency for replacements, in some European markets, already accounting for more than 50%, like in Italy. From the global point of view, the AC market penetration in Europe remains lower than in the U.S. or Japan, suggesting that there is still enough space for growth as suggested by Mr. Lukac, author of the study.

Changing Preferences and Technological Shifts

The AC market’s troubles are not solely due to economic conditions. The industry is also facing increased competition from alternative cooling solutions, such as cooling ceilings, cooling provided by heat pumps, and more centralized HVAC systems, especially in non-residential buildings. These alternatives, though more expensive initially, offer greater efficiency and are increasingly favored by architects and builders.

Albania Leads in Growth

Among the countries analyzed, Italy continues to be the largest market by value sales, followed closely by France and Germany. In the CEE region, Poland and Greece are the top performers in terms of sales volume. Albania leads in growth expected for 2024 (4,2%) among all European countries. The office building sector dominates, accounting for 30,3% of the market last year, followed by industrial buildings at 16,6% and the HoReCa sector (hotels, restaurants, cafés) at 16,2%.

 Chinese Manufacturers Gaining Ground

The air conditioning market is highly concentrated, traditionally led by Japanese manufacturers like Daikin, Mitsubishi, Toshiba, and Fujitsu, which accounts for more than 49% of total European market in value sales. However, this dominance is being challenged by the rise of Chinese companies such as GREE and Midea. These Chinese suppliers despite the market downturn in 2023, made their way to rise the market share and kept growing by almost 2% in contrary of other companies’ sales problems. They are making significant inroads, particularly in the conventional split air conditioner segment, which is popular in residential markets.

The air conditioning market in Western Europe (Germany, Italy, Spain, Benelux, France, UK and Austria) recorded a 7.3% increase in turnover in 2021. The CEE region (Poland, Czech Republic, Slovakia, Hungary, Romania, Serbia, Croatia, Macedonia, Bosnia-Herzegovina, Slovenia, Albania, Bulgaria, Greece) recorded an even greater increase of +13%, according to a study by Interconnection Consulting.

In Western Europe, the market for air-conditioning systems clearly exceeded the pre-crisis level with a turnover volume of 4.5 billion euros. In the CEE countries, the turnover volume was 1.7 billion euros. The market will continue to flourish in the future. Interconnection forecasts an average growth rate of 4.2% until 2025 for both markets.

Romania with Top Growth

The Italian market remains the largest sales market among the countries surveyed, followed by France and Germany, while in the CEE region Poland and Greece represent the regions with the strongest sales. Romania, however, is the country with the strongest growth figures across all market segments. Office buildings are the largest business segment, generating a market share of 31% last year, followed by HoReCa (hotel, restaurant, café) with around 17% and industrial buildings with 16%.

Chinese Emerging

Market concentration in the sector is very high. The market is dominated by Japanese manufacturers such as Daikin, Mitsubishi, Toshiba and Fujitsu. This dominance is threatened by the rising Chinese suppliers such as GREE and Midea, especially in the field of conventional split air conditioners, which are mainly used in the residential sector. In the CEE region, Chinese manufacturers are gaining market share, but also in the VRF sector. VRF is a variable refrigerant flow control system that allows end-users to simultaneously use several air conditioning areas independently of each other. These systems are mainly used in large commercial buildings.

The non-residential air conditioner market will increase its sales in the CEE countries (Central and Eastern Europe) by 4.5% this year. Sales volume has reached EUR 568.3 million, representing an increase of 6.0%. The market is also expected to continue to grow over the next few years. According to a study by Interconnection Consulting, industry sales will see an annual increase of 5.3% to the year 2021.

As part of the EU’s environmental goals (-20% CO2 emissions, +20% renewable energy, -20% energy consumption), air conditioning systems have also been affected by the EU regulation. Thus, in an attempt to make the market more transparent, the ratings for air conditioning systems have been revised. New performance indicators (seasonal energy efficiency ratio – SEER; seasonal coefficient of performance – SCOP) are designed to accurately assess performance throughout the entire year, instead of measuring short-term performance as was the case in the past. Furthermore, the EU will now be controlling imported goods more carefully, thereby creating a better competitive environment for European manufacturers. This, in turn, also affects pricing. As a result, Interconnection expects to see an above-average price increase on the market, which means that the nominal increase in revenue will amount to 5.3% annually to 2021, while sales volume will only increase by 3.5% per year.

Bosnia and Serbia – The Kings of Growth

The largest markets are Romania and Bulgaria. In 2017, sales growth was 5.2% in Bulgaria and 4.8% in Romania. The fastest-growing markets are Bosnia (17.5%), Serbia (16.0%), and Albania (13.6%). At the other end of the spectrum last year were the Czech Republic and Slovakia, whose sales both stagnated. The biggest market segments are offices, with a market share of 36.3%, and commercial properties (29.4%). However, as the market share of offices continues to rise, it is stagnating in the commercial buildings sector. Due to the increasing supply in tourism, hotels are also experiencing an upward trend. Their market share is currently at 24.4%.

Single-Split Dominates Market

Compared to Western Europe, the market share of single-split systems (permanently installed air conditioning units consisting of an outdoor and an indoor unit connected by refrigerant lines) is relatively high in Eastern Europe. In 2017, this segment accounted for 46.0% of total revenue. In terms of value, VRF units (cooling and heating with heat recovery) represent the second-largest product segment this year with a market share of 18.0%, followed by multi-split units (18.0%) and rooftop units (rooftop central air-conditioning units) with 2.8%. Although the single-split segment will maintain its leading edge over the medium term, the strongest growth is expected from VRF and chiller products, with an average annual growth of 6.9% and 7.1%, respectively.