Retrofits Increasing in Demand as Housing Starts Slip

The great thing about existing homes is that they exist.

At a time when economic and construction forecasts are dismal, a foundation of existing home projects -- retrofits, remodeling and home additions -- can provide integration companies with invaluable stability.

Sure, new-construction projects remain appealing to integrators. Why not? Installation is relatively seamless. Margins are strong. And partnerships with builders can earn steady contracts.

The problem, however, is that new-construction jobs seem to be going away.

Traditionally, Oakdale, Minn.-based Magic Homes' ratio of new-construction to retrofit projects is three to one, but president Robert Christensen says times have changed.

"Almost 90 percent of our revenues for the last 18 months has been from the retrofit market," he says, adding, "I thought this was my little secret."

Nope. CE Pro e-mailed a large sample of integrators asking if they have seen a dramatic shift in their ratios of new-construction to retrofit projects. An overwhelming majority responded that they are seeing retrofits creep up as new-construction opportunities slip.

The shift has been taking place over the past 12 to 18 months, according to Jim Gray, owner of Tallahassee, Fla.-based Jim Gray Designs.

"We have seen an increasing number of remodels and retro work for some time now, which is clearly understandable, given the overall climate of the new-construction market," he says.

Housing starts were down 25.2 percent through the first nine months of 2007, according to a report by the Parks Associates and EH Publishing (parent company of CE Pro).

The immediate outlook isn't good either, according to the Parks/EH report. Permit volume, which is seen as a precursor of home building activity, is down.

The report states that there were 25 percent fewer permits issued for new residential construction nationally through September 2007 than through the first nine months of 2006. September marked a single-family permit volume low dating back to April 1992.

Gray predicts that the construction market will stay down for "at least another year." He ponders: "Who knows what circumstances will bring it back?"

He isn't worried though, and says that companies that haven't built their futures purely around the new-construction market need not worry either.

Retro Growth Spurt

The silver lining some integrators see is that existing home opportunities appear to be on the rise. Richmond, Va.-based Specialty used to do about 90 percent new-construction work.

"Over the last year, we have found that our business, which comes primarily from the architectural community, to be heavily renovation/remodel job oriented," says president and owner Tony Lovette.

"This appears to be the trend with the architectural community, where less construction work is available and their clients are instead opting to spend more on renovating their existing homes."

It's not just the architects. "A lot of existing customers and new customers are deciding to renovate their homes instead of moving or building a new home," says Buck Curtis, general manager of Durham, N.C.-based First Security Service Inc./Custom Audio Solutions.

Lovette thinks the trend will continue. "We expect the retrofit market to increase as more and more upper-middle to upper market clients decide not to move and, instead, renovate their homes," he says.

The U.S. Census Bureau and the National Association of Home Builders agree. The remodeling industry is at an all-time high, according to a joint study by the organizations.

It estimates that in 2007 remodeling has become a $250 billion plus industry. It predicts that, in 2010, it will exceed $350 billion.

It's logical, therefore, that integrators should plan to exploit the existing home market. They're likely to have plenty of competition, though.

Much in the way companies swarmed to capitalize on the housing boom a few years ago, Candace Lopes expects everybody to want a piece of the existing home pie. But as Lopes, a partner at Port Saint Lucie, Fla.-based The Audio/Visual Guy Inc. points out, it's not easy.

With walls up, there are many more variables. This can mean project delays, postponement of payments, overly inconvenienced clients, diminished referrals and compromised profit margins.

Upfront planning is a must. And once integrators are inside their clients' homes, "special care must be taken to do as little damage and cause minimum interference to their daily lives," Lopes says.