SUMMARY OF REPORT CONTENTS

          UK Space and Water Heating Market by Value

                             (£m MSP) 2008-2012

The UK space and water heating market is estimated to be worth some £724 million in 2010, after a decline of some 7% in the period 2008-09. This market sector is part of a total UK heating market worth around £1.75 billion. The core product sectors of the UK space and water heating market include domestic space heating (36%), non-domestic space heating (34%) and domestic and non-domestic water heating (30%).

Like other products in the building and construction industry, the market for space and water heating products has been impacted by the global financial crisis and the resulting recessionary conditions in the UK and other countries. Market performance in 2008-09 was relatively poor, with a decline of around 7% - partly due to the major fall in the levels of housebuilding. In addition, financing constraints also impacted on the non-domestic sector; anecdotal evidence suggests that the deferment of orders from 2009 in to 2010 also contributed to the market decline.

The market situation in 2010 was more positive, particularly in the first half of the year. The Boiler Scrappage Scheme lifted the market for domestic water heating in general and the cold winters of 2009-10 supported domestic space heating sales. However, cutbacks in Government expenditure and difficulties in securing finance continued to have a negative influence on most space and water heating sectors.

The majority of water heating and non-domestic space heating products are distributed via the trade channels such as builders/plumbers merchants, electrical wholesalers and specialist heating distributors. However, around 72% of domestic space heating products are distributed via the retail sector such as DIY multiples, grocery multiples and catalogue stores.

The outlook for the UK space and water heating market in 2011 remains uncertain. With cuts announced in the Comprehensive Spending Review in October 2010, it will undoubtedly prove to be a difficult year as disposable incomes fall, tax rises are implemented, and unemployment may rise. In 2011, the market for space and water heating products is estimated to be around £730 million at MSP.

There is underlying long-term growth in the level of hot water consumption driven by factors including increasing levels of power showering, also a growing population. With a rising number of bathrooms per household, there is a greater demand for high flow rates from multiple outlets. Unvented and other mains pressurised systems represent around 46% of all hot water systems sold in the UK. With the push for zero carbon new housing by 2016, housebuilders are starting to look towards electric space heating to satisfy the improving thermal efficiency of new houses. European examples of low to zero carbon housing often use electric space heating in some form.

The future performance of the UK space and water heating market is likely to be influenced by overall trends in house building and construction, RMI activity, fuel prices, energy efficiency legislation, renewable technologies, levels of personal disposable income, patterns of hot water consumption and niche market drivers such as the self build and conservatory markets. In the medium to longer term, the space and water heating market is expected to grow slowly and by 2015 the market value is forecast to be around £785 million at MSP, which would represent an increase of 7-8% compared to the market size in 2011.