Analysis: COVID-proofing air is a $10B opportunity

When's the last time you actually thought about your office's air conditioner? Pre-pandemic, assuming it worked, probably never. Today? Probably a lot. And even once the coronavirus outbreaks have subsided and a vaccine is finally in hand, you're probably still going to feel differently about the air you breathe, especially indoors.

Increased interest in filtration, disinfection and other tools for improving the quality of indoor air will likely create a new revenue opportunity of multiple billions of dollars across the industry, Johnson Controls International CEO George Oliver said on a call Tuesday to discuss the building-products company's most recent quarterly results.

Johnson Controls alone is looking at potential projects in this vein worth "a couple of hundred million" for just next year, he said. That echoes commentary from rivals including Carrier Global Corp., which estimates the ultimate market for indoor air-quality improvements will reach about $10 billion, including $150 million of potential business opportunities the company has already identified for itself. Honeywell International Inc. cited a more than $600 million sales pipeline for its "healthy buildings" offerings.

It's in these companies' interest to tout this opportunity. Heating, ventilation and air conditioner (HVAC) systems have been a rare bright spot in an industrial sector that's struggled to inspire investors with third-quarter results that signaled a sure but slow recovery. Consumers have been snapping up new air conditioners amid a lockdown-inspired home-improvement wave, but even commercial landlords are investing at a greater rate than expected as they try to lure people back to offices, restaurants and retail space.

There were fears that air conditioners were to blame for spikes in coronavirus cases as hot summer weather pushed people indoors. The reality is that these systems can be an effective tool in fighting off contagions - with some upgrades. These range from adding higher levels of filtration and allowing for more outside air flow to installing ultraviolet light disinfectant systems and digital-monitoring technology that lets building managers know if everything is working as it should. All of these cost money.

"It's something that everybody needs," Honeywell CEO Darius Adamczyk said on a call to discuss third-quarter results last week. "At least in the U.S. and some other parts of the world, people are not working in their workplace yet. But when they do come back, they do want to come back to a healthier environment. I think we're kind of hitting the spot there and the time to implement those solutions is now, not after people come back."

Carrier CEO Dave Gitlin pointed out that people spend a whopping 90% of their lives indoors on average, meaning that if you are 50 years old, you've spent 45 years sitting inside. That is both depressing and instructive. We may be more aware of our time inside after having endured lockdowns, but even in a pandemic-free future we're still going to be breathing in an awful lot of indoor air. And it seems likely that after everything the world has been through, the average person is at least going to think twice about the quality of that air.

This theme fits hand in hand with a broader pivot toward sustainability in both the HVAC industry in particular and the manufacturing economy more broadly. A building that's helping the environment by releasing fewer greenhouse gases doesn't have the same appeal if the air within its four walls can be a (real or perceived) conduit for disease. What we've learned is that our previous standards of air purification didn't hold up to the test of the pandemic and those need to evolve accordingly, Oliver of Johnson Controls said. After all, the coronavirus is unlikely to be the last novel pathogen the world encounters.

Trane Technologies estimates there are 1.7 trillion square feet of building space around the world and that some 400 billion of that is nonresidential, communal real estate. If all of that ultimately needs to be upgraded, well, you get the picture.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies.