STATS 2024: Slew of factors impact commercial market activity

Encouraging signs of economic recovery following the lingering challenges from the COVID-19 pandemic continued in 2023 for the commercial contract flooring market, although not to the extent of 2022’s 13.1% increase in dollars. FCNews research shows total commercial sales reached $7.227 billion in 2023—a 1.5% decrease from 2022. This compares favorably to overall industry sales, which were off 10.1% from the year prior. Observers say a confluence of factors prevented another year of double-digit gains. Among them: surging construction materials costs and financing rates, a decline in the labor pool and some lingering supply chain issues.

By and large, though, commercial hung in there. “The commercial market has held up better over the last six months or so,” noted Brian Carson, AHF Products’ president and CEO. “Some segments are doing better than others.”

To that end, following is an overview of commercial flooring sales activity in 2023 by end-use sector:

Office/corporate

While commercial activity in the U.S. market varied widely by region, it’s safe to say that the office/corporate market felt the greatest impact coming out of the COVID-19 pandemic. While many employers have adopted either hybrid or fully remote work schedules, many workers still have not yet returned to the office. This has resulted in higher overall office vacancy rates coupled with hesitation among many companies and lease holders to invest in commercial workspaces. As a result, the office/corporate market saw its share of the total commercial pie slip to approximately 15%, down tangibly from roughly 21% of the market in 2022.

The shifting commercial landscape was impacted by broader macroeconomic challenges within key market segments in 2023, flooring executives concede. Many companies are reportedly reevaluating their real estate needs, downsizing office footprints and adopting more flexible work-from-home policies, which diminishes the immediate need for refurbishments. The office sector set a new vacancy record at 19.8% in the first quarter, up from 19.6% in the prior three-month period and beating two historic peaks of 19.3% in 1986 and 1991, Moody’s reports.

Nonetheless, some industry members do not believe the numbers tell the whole story. “We’re cautiously optimistic the corporate office segment will continue to drive steady demand for commercial flooring,” said Jim Poppens, Interface’s chief commercial officer. “We’ve seen companies remodel their offices as they entice people back on site or, in some cases, move to a new space that’s smaller.”

With inflationary pressures tightening budgets, many companies are opting for cost-effective yet durable flooring options. For instance, LVT and polished concrete are gaining popularity due to their affordability and longevity, thereby reducing the need for frequent replacements. “Because the corporate sector has been so hard hit, we are seeing lower budgets, which creates demand for lower-priced products,” said Geoff Gordon, executive director, Fuse Alliance.

Simultaneously, design trends are steering toward sustainable and versatile materials. Biophilic design, emphasizing natural elements, has propelled the demand for eco-friendly flooring like ceramic and hardwood, according to published reports. These choices not only align with sustainability goals, but reportedly enhance employee well-being by creating a calming, nature-inspired environment.

“Companies and consumers are increasingly opting for sustainable products, including ceramic tile,” said Rocamador Rubio, director, Trade Commission of Spain for the USA. “These materials are known for their durability and long lifespan, reducing the need for frequent replacements and lowering the overall environmental impact.”

Healthcare

By comparison, favorable conditions in healthcare are fueling sales. In fact, the healthcare sector continued its pace as one of the fastest-growing commercial segments, capturing the largest market share (44%), according to FCNews research.

“Growth in healthcare is being driven by expanding urban healthcare systems as they acquire smaller local providers in suburban areas,” said Antonio Bucca, senior director, sales operations, Tarkett.

Flooring choices in this blazing hot sector are evolving to meet the demands of a sector focused on patient comfort, hygiene and sustainability. “Healthcare continues to grow as the population ages,” said Yon Hinkle, vice president of product management – resilient, AHF Products. “Not all of that work is specified; you see it locally, such as new medical facilities that specialize in areas such as memory care. Assisted-living centers and specialty healthcare continue to grow and use a lot of resilient products.”

Resilient, representing roughly 31% of commercial product sales, is the most popular flooring due to its versatility, durability, ease of maintenance and plethora of design options, eperts say. Sheet vinyl, for example, is prized for its antimicrobial properties in areas like ER triage, operating and treatment rooms. “In healthcare, sheet vinyl is still the primary product in acute care,” Fuse Alliance’s Gordon noted. “For other projects, sheet vinyl, LVT and carpet tile are frequently specified.”

LVT is increasingly used in non-critical areas such as hallways, cafeterias, waiting rooms, office spaces and patient rooms. Ceramic tile and linoleum are considered healthy choices, ideal for public spaces, while carpet tile remains a popular selection for patient rooms, waiting areas and offices.

“Healthcare tends to use more hard surfaces, like in vet clinics and doctor’s offices,” said Robb Myer, vice president, Aladdin Commercial. “The trend is toward loose lay, a beefier product that enables you to roll heavy equipment across it.”

Education

Much like healthcare, education is in growth mode, surging ahead to the second-largest sector, representing about 23% of commercial flooring sales, according to FCNews research. K-12 is the dominant end-use market with approximately 75% share of flooring sales, while the rest comes from higher education. Growth here is welcome in a segment that was impacted by financial strains during the pandemic and exacerbated by enrollment fluctuations and reduced capital expenditures.

“K-12 had a lack of investment from 2020 to 2023,” said Mark Bischoff, president and CEO, Starnet Commercial Flooring. “The movement of populations between states is driving the need for schools in fast-growing areas.”

Several major trends affect flooring choices at academic institutions. The focus on sustainability and biophilic design, for example, is driving a push toward incorporating elements of nature into classrooms and public areas. “Higher education institutions are prioritizing the sustainability attributes of interior products to meet climate commitments,” Interface’s Poppens noted.

Schools are reportedly seeking flooring featuring recycled content and renewable resources, or low-emission products, to reduce their ecological footprint and comply with local building codes. “Since 2020, education has enjoyed increased government funding for building projects that support indoor-air quality and overall occupant health and wellness,” Tarkett’s Bucca noted.

Flooring offering aesthetic appeal and low maintenance are also in demand. Industry observers note there is a diversified amount of soft and hard surfaces specified, especially at college campuses, which operate multiple facilities. Hard surfaces dominate the landscape, representing more than half of the flooring sold to K-12 educational spaces.

“Education is always steady in the ceramic market, especially in Southwest and some regions that utilize ceramic heavily in their schools,” said Whitney Welch, vice president, commercial sales, Daltile. “It’s always a steady 1% to 3% growth no matter what’s going on with the economy.”

Carpet also plays a significant role, with the education sector being the second-largest commercial market for this material, accounting for nearly one-third of its sales, according to FCNews research. “Carpet tile remains the flooring of choice in classrooms because of its associated comfort for students and teachers, acoustics and ease of maintenance,” said Daniel Collins, vice president of commercial soft surface and innovation, Shaw Industries.

Retail

As stores welcome back consumers in greater numbers following the height of the pandemic, the design and functionality of their spaces will play a pivotal role in attracting and retaining consumers, industry members say.

Retail is a highly competitive market as retailers not only compete against each other but face mounting pressure from online shopping. Contrary to popular belief, shopping online and at brick-and-mortar stores remain equally popular. “Consumer spending continues to drive economic growth and retail sales increases, although we see some moderation in spending as consumers continually search for value,” said Matthew Shay, National Retail Federation president and CEO.

Interior design trends continue to evolve, with flooring choices reflecting a blend of modern and vintage aesthetics, sustainability, versatility and uniqueness. Retail spaces often feature ceramic and carpet tiles while resilient flooring such as LVT and VCT are coveted in public areas for their performance, color range and acoustical properties.

Sustainable options, namely wood, rubber and linoleum, align with the industry’s push for eco-friendly design. “Beyond functionality, our LVT products serve as dynamic way-finders in retail settings,” said Joe Michalik, Eastern regional commercial sales manager, Karndean Designflooring. “With customizable designs and colors, retailers can craft visually engaging pathways, seamlessly guiding customers through their stores.”

Hospitality

Hospitality, which includes sub-sectors such as arts, entertainment, recreation, accommodation and food services, held fairly steady in 2023 following a remarkable post-pandemic recovery in 2022. Last year this sector grew its share of the commercial market ever so slightly from 12% in 2022 to 13% last year. The surge in the hotel/hospitality business, in fact, is evident in the rising demand for staff across virtually all sectors of the hotel business.

A newly released report by CBRE showed total hotel employment stands at about 1.92 million, which is 191,500 fewer workers than in February 2020, just before the onset of the pandemic. “Hotels are doing all they can to attract and retain workers,” said Kevin Carey, interim president and CEO of the American Hotel & Lodging Association (AHLA). “But the nationwide workforce shortage is preventing our industry from reaching its full potential.”

For decades, major hotel chains focused on consistent design to reinforce their brand identity. However, today’s guests seek unique and visually interesting spaces. This evolution is particularly evident in flooring trends, as hotels aim to create unique, engaging environments that appeal to a new generation of patrons.

Millennials and Gen X are significantly influencing hotel branding and design, favoring properties that offer a sense of place and connection, according to published reports. This trend is pushing hotels to move away from generic designs and soft surfaces, opting instead for solutions that balance fashion and function. “When you look at soft surfaces, it’s all about pattern and color,” Aladdin’s Myer noted. “We’re seeing more organic and geometric patterns that work together.”

Flooring choices run the gamut as hotel operators aim to create visually dynamic spaces. Public areas like lobbies, restaurants and bars frequently feature durable and aesthetically pleasing hard surfaces such as LVT, rigid core, hardwood, ceramic and natural stone. LVT is reportedly gaining more coverage in guest rooms and mixing installations with broadloom. “Hospitality is going to bounce back and we’re certainly seeing that,” said Larry Browder, AHF executive vice president of sales, Crossville. “Ceramic tile can play in every area of the hospitality space, such as bathrooms, living spaces, common and exterior areas.”

State of multifamily

While some consider the multifamily segment as being a residentially focused market, products in this sector are largely chosen via a contract-market specified process based on bidding. That puts the subsegment squarely in the realm of commercial. As construction activity closed in 2023, the multifamily market continued its decline. Industry observers cited tight lending conditions and the largest number of units under construction since 1973. Rental prices fell, in part, because there were so many new units in the marketplace. On a positive note, as more millennials and Gen Zers leave their nests, a high number of potential renters are expected to enter the market.

“In my opinion, the reason multifamily has not slowed yet is it’s a generational thing,” Daltile’s Welch explained. “Gen Z is the generation that’s graduating and coming into the workforce today, and they don’t want to own homes. So, apartments are where they will live.”

When you look at the overall numbers, there was not a lot of movement compared to the prior year, when recovery from the COVID-19 pandemic created significant shifts in market share among the five major end-use sectors. Commercial accounts for approximately 29% of total U.S. flooring sales and most applications (approximately 70%) are generated from specified contract while Main Street represents the balance.

Healthy flooring choices are trending, experts note, impacted by stricter regulations regarding environmental impact and sustainability. “Manufacturers continue to be inspired by one another to create safe and sustainable products that can be confidently specified and installed by our customers,” said Zack Adamson, vice president, Engineered Floors commercial division. “You will continue to see more PET products in Main Street markets because of the value it delivers.”

Hard surface vs. soft surface

In keeping with trends seen in recent years, 2023 marked another year where hard surface held its share of the market compared to carpet. In 2023, vinyl represented approximately 31% of commercial sales, in keeping with its market share from the year prior. “There is continued growth of resilient products, as there is a lot of remodeling going on with spaces switching out from commercial carpet and other products,” AHF Products’ Hinkle stated.

Approximately 60% of this business came from specified contract, highlighting a trend where detailed customization and robust material choices led the market, FCNews research shows. The remaining volume was nearly split with Main Street applications, showcasing the versatility of hard surface across various commercial environments. “Growth was seen across all resilient flooring categories, with strongest sellers being LVT and sheet goods,” Tarkett’s Bucca noted.

Indeed, leading this charge was resilient, accounting for approximately 35% of commercial hard surface volume, retaining its position as the fastest-growing category. This category encompasses a diverse range of products, such as rigid core, sheet goods, VCT, linoleum and rubber. “LVT continues to take market share in every segment,” Fuse Alliance’s Gordon noted.

VCT experienced a resurgence, driven in part by LVT being oversold in certain commercial spaces. “We’re seeing a lot of commercial specs that include VCT,” AHF Products’ Hinkle said. “LVT was being used in areas which, quite honestly, shouldn’t have been used.”

Ceramic tile secured roughly 18% of commercial sales in 2023. Trending in commercial tiles are large formats and stronger ceramic finishes that can withstand heavy foot traffic and impact, thereby reducing the risk of chipping or cracking. Innovative printing technology continues to revolutionize the category, experts say, enabling high-definition patterns and textures that offer unparalleled realism.

“It also allows for customization of tiles, enabling architects and designers to create unique and personalized designs for commercial projects,” Trade Commission of Spain’s Rubio stated.

Commercial carpet sales, by comparison, fell 3.9% in the face of higher hard surface consumption and a slightly declining market overall. About two-thirds of carpet revenue came from specified work and the rest from Main Street applications. Carpet tile showed robust growth across most market segments, maintaining a 60% share of soft surface sales, primarily driven in specified contract.

“Carpet tile remains the carpet of choice for commercial environments,” Shaw Industries’ Collins said. “However, broadloom is used strategically in spaces requiring elevated design with large patterns and higher ounce weights, or in environments where a seamless look is desired with smaller or no pattern.”

Broadloom maintains a stronghold in hospitality and in certain Main Street settings.

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