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IBISWorld, Inc. Reports Fastest Growing Franchises in Home Improvement



As the economy improves and residential market recovers, franchises in the home improvemnt sector are expected to flourish.



Published October 16, 2013
Since the recession, many consumers are looking to increase the value of their homes and reinvest in their properties, driving up demand in a variety of industries in the home improvement sector. Notably, franchises in this sector fared slightly better than their non-franchised counterparts during the downturn, primarily due to increased brand recognition. Thus, as the overall economy improves, demand for franchises in this sector is expected to increase significantly. Indeed, home sales, a primary driver for these industries, are expected to rebound as families take advantage of the lowest prices in several years because the Federal Reserve is keeping interest rates low for the time being. In the next five years, the volume of existing home sales is expected to increase at an average annual rate of 6.9% to about 7.2 million; comparatively, existing home sales grew an annualized 4.6% to reach 5.2 million in the five years to 2013. As a result, franchises in the home improvement sector are well-positioned to capitalize on the recovering economy and obtain a strong foothold for future growth over the next five years.

Real Estate

Many individuals, couples and families turn to real estate agencies to show homes to prospective buyers, negotiate transactions on their behalf and represent them in real estate transactions. Pent-up demand for housing, built up largely by young adults continuing to live at home, is expected to spark a revival in housing activity due to record-low housing prices and mortgage rates. As a result, consumers are expected to look to real estate agency franchises to aid in the process of buying a home and home inspection franchises to evaluate the state of a home. Declining unemployment levels and higher disposable income are forecast to lead to faster household formation, further benefiting these franchises. Consequently, more Americans will become eligible for mortgages and consider buying rather than renting a home. As a result, the Real Estate Agency Franchises industry is expected to grow at an average annual rate of 5.5% to reach $8.8 billion in the next five years.

Like real estate agencies, home inspection franchise operators cater to potential homebuyers and sellers of new and existing homes. Inspectors ensure there are no upfront issues hidden underneath a building’s façade. Issues exposed after inspection give buyers an idea of costs needed after the home is purchased, and buyers can look to negotiate a lower purchasing price based on the costs of repairs needed. Revenue for home inspection franchises is expected to increase at an average rate of 3.3% per year to $211.9 million in the five years to 2018.

Renovations

Rising home prices and existing home sales are expected to drive demand for repairs and remodeling projects over the next five years. Handyman service franchises are expected to benefit from this trend; franchises in this industry provide a wide range of repair and maintenance services, such as drywall repair, electrical system repair and plumbing work. Meanwhile, rising energy costs will be a continued concern among homeowners in the next five years, increasing demand for energy-efficient retrofits to houses. As a result, handyman service franchises are likely to focus on energy-efficient upgrades to windows, doors and insulation. These trends are expected to contribute to an annualized 4.4% increase in handyman service franchise revenue, reaching $3.1 billion in 2018.

Meanwhile, improved levels of disposable income and less leisure time will cause consumers to seek services from professional painting service companies, rather than taking on do-it-yourself projects. Consequently, revenue for painting and decorating franchises is expected to increase at an average annual rate of 3.0% to $929.9 million in the five years to 2018.

Additionally, the significant number of foreclosed homes on the market with years of underinvestment during the recession will create a large amount of renovation work for both handyman service franchises and painting and decorating franchises. According to RealtyTrac, as of September 2013, more than 10.7 million residential homeowners in the United States owe at least 25.0% more on their mortgages than their properties are worth; another 8.3 million residential homeowners are heading in the direction to have enough equity to sell their home sometime in the next 15 months. This represents a large potential market for renovations, which handyman service franchises and painting and decorating franchises can capitalize on.

Repairs

Households make up the majority of the market for plumbing service franchises. Consumers may call on plumbing service franchises for new plumbing construction and installation, alterations and repairs. The industry receives a steady pattern of demand from households for repairs due to the long-term nature of maintenance contracts. Because plumbing service franchises are also sensitive to new home construction, growth in housing starts is expected to expand the industry’s pool of customers: Housing starts are expected to grow at an average annual rate of 10.0% in the next five years due to greater investment in new housing units. A greater number of homes translate into more pipes, drains, sinks and toilets requiring installation and repair. As a result of these trends, revenue for the Plumbing Service Franchises industry is expected to grow at an average annual rate of 5.3% to $2.0 billion in the next five years.

Like plumbing services, electrician service franchises are also used for both household repairs and product installation. Furthermore, with a greater household focus on technological advancements, modern homes require extensive and complex electrical distribution systems. As new markets emerge in response to technological change, specifically in the areas of telecommunications, data networks and computer cabling, the industry is projected to experience a significant increase in demand. Consequently, revenue for electrician service franchises is expected to increase at an average annual rate of 2.6% in the next five years to total $660.7 million in 2018.

With a greater focus on carbon dioxide emissions and global warming, federal and state governments have provided incentives for individuals to upgrade and replace existing heating, ventilation and air conditioning (HVAC) systems with newer, energy-efficient units. This government support is expected to continue in the next five years, increasing demand for industry services and boosting revenue for HVAC service franchises at an average annual rate of 4.3% to $2.6 billion. Additionally, consumers with more money to invest in HVAC systems, either to install for the first time or to upgrade, are also expected to contribute to the rise in industry demand. With more HVAC systems being installed over time, the industry will also generate revenue through repairs, especially those that were postponed during the recession.

Conclusion

Due to the housing market collapse, home prices declined, and demand for housing-related products and services decreased as a result. But as the economy improves, with unemployment falling and incomes rising, more consumers will capitalize on these low prices and buy homes. As a result, home improvement franchises will benefit as consumers look to real estate renovations and repairs. Despite the housing market bubble bursting in 2007 and 2008, home sales have ticked up as foreclosed homes and dwindled savings forced prices down enough to entice buyers. Tax credits for buyers pushed consumers to purchase homes sooner and buyers have looked to make purchases before interest rates start to increase (which flow through to mortgage rates and home affordability).

Franchise operators in the housing market are expected to grow quickly over the next five years, due to the housing recovery, trends in environmental awareness and technological changes. Real estate purchases, renovation and repair are all specific areas that will benefit from increased home purchases. Overall, low interest rates are likely to keep buyer lending conditions positive, which will then stimulate greater demand for home purchases, renovations and repairs. As a result, these seven franchise industries will continue to grow at a rate that will outpace the domestic economy in the next five years.


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