Electrical contractors head home for emerging opportunities

When the residential market was booming and before it came in for a soft landing, contractors enjoyed the bounty spurred by historically low interest rates and high demand for new homes; to uncover trends in the residential market, ELECTRICAL CONTRACTOR surveyed subscribers to explore how electrical contractors fit into the residential market. The survey revealed project types, where the work is performed and the electrical contractor’s role in brand selection and design.

Categories of projects

The ELECTRICAL CONTRACTOR residential survey included a list of 16 traditional electrical and low-voltage projects grouped into eight categories. On average, electrical contractors who perform residential work participated in about half of the 16 project types and in about five of the categories—indicating a high degree of involvement in residential work.

Within the residential market, projects involving traditional power and lighting are equally likely in new versus rehab/remodeling jobs, but low-voltage projects are consistently more likely to be completed in new construction, single-family jobs than as part of a single-family rehab/remodeling project.

And while low-voltage projects are generally more likely to be part of new multifamily construction, the biggest difference occurs in the case of fire/life safety or security systems where there is a 10-point difference between new construction work and rehab/remodeling work. Perhaps housing codes contribute to this trend.

The one exception is in the case of home theater/sound systems where electrical contractors say they are equally likely to perform this kind of job either as part of new construction or as part of a rehab/remodeling job.

Not surprisingly, traditional power categories earned the most mentions in the survey, but more than 70 percent of respondents performed some aspect of whole-house automation work (controls, fire/life safety/security or home theater/sound systems). This magnifies the reach of the electrical contractor on any given residential job site. In other words, general contractors (GCs) are requesting more from ECs.

Job location

Electrical residential work is more likely to be on single-family homes (98 percent) than on multifamily homes (47 percent). In addition, the survey shows nearly all of the contractors who work on multifamily homes also work on single-family homes.

Firms with fewer than 10 employees are more likely than their larger counterparts to have worked on single-family homes in 2005. Conversely, larger electrical construction companies are more likely to work on multifamily homes and nonresidential projects.

Seventy percent of ECs who perform residential work had revenues of less than $1 million in 2005. On average, smaller firms derive 60 percent of their revenue from single-family residential work followed by commercial/institutional/industrial (CII). Conversely, larger firms (10 or more employees) that perform residential work reported half of their revenue comes from residential construction.

Specify and design

Electrical contractors who work in a given category do more than installations. High percentages report they typically specify/select brands or design systems, including high-end items such as architectural/custom or landscape lighting and home theater/sound systems work.

According to the data, owners and GCs increasingly trust ECs to select brands. About 90 percent say they are involved—to varying degrees—in brand specification. About 30 percent of those who work on residential projects say the plans and specs they receive are “less complete” compared to three to five years ago, which further suggests an enhanced brand-specification role. Two-thirds of the specifications allow electrical contractors to choose “multiple brand,” “equal” or “performance” on brands.

Electrical contractors also report about one-half of their single-family projects are completed on a design/build basis, while 40 percent of multifamily projects are done on a design/build basis. Even on non-design/build projects, electrical contractors have the authority to select brand. A mere three in 10 specs call for a single or proprietary brand.

To outsource or not?

Electrical contractors say they handle automation or controls work internally, rather than subcontracting it out. Furthermore, they typically use the same staff for both electrical and automation work, meaning employees are cross-trained in both traditional power and in the latest automation technologies.

ECs perform their own lighting and home automation design on average about 45 percent of the time, while they follow the GC’s or owner’s design about 47 percent of the time. ECs subcontract lighting and home automation work a mere 8 percent of the time.

One caveat to subcontracting: The larger firms with more than 10 employees are more likely to subcontract this work, perhaps due to the work complexity or relationships with subcontractors whospecialize in these areas.

Only 20 percent of respondents have separate departments or divisions to tackle controls and automation. The larger ECs are three times more likely than the smaller firms to handle this type of work through a separate division or department. Their mutual reliance on the residential market overshadows general contractors’ reliance on electrical contractors and vice versa.

Residential reliance

The survey suggests 87 percent of ECs in the residential market worked on custom or luxury homes, while only 32 percent reported working on tract housing projects. That means there is a high degree of participation among electrical contractors on high-end home projects.

In fact, a quarter of the survey respondents intimated that they worked on a home valued at $1.5 million or greater in 2005. That tells us how important the EC is to pulling all the traditional electrical systems and low-voltage systems together in a whole-house package in custom, luxury residences. No other trade is better positioned to design, specify, install and tie these systems together than the electrical contractor.

ECs are optimistic about the future. About 60 percent of firms currently doing residential work and 25 percent of firms not currently doing this type of work expect their volume of residential work to increase over the next three to five years. Only 10 percent expect a decline.

Even as the economy bounces back from its residential soft landing, ECs are generally predicting more work in the residential market. When you see the economic trends and the softening of the housing market (see “2007 Construction Outlook,” in the January 2007 issue of ELECTRICAL CONTRACTOR), perhaps ECs are uniquely positioned to prosper while other trades suffer through difficult times. The fact that electrical contractors can perform multiple tasks and design systems in custom homes provides an added layer of protection from the ebbs and flows of the economy.

The residential survey conducted by ELECTRICAL CONTRACTOR in 2006 clearly demonstrates the following trends. Electrical contractors:

  • Are heavily involved in residential construction
  • Rely more on single-family and new construction than on multifamily and rehab/remodeling work
  • Increasingly perform more than installers; they are involved in design and specification more than ever
  • Are best suited to perform both electrical and controls/automation work on residential projects (two functions, one contract)
  • Are being tapped for high-end custom and luxury home projects for their expertise
  • Are not subcontracting work out very much in the residential market
  • Rely on residential construction as a major revenue source and will continue to do so.

After closely examining what the residential market means to the bulk of electrical construction companies, one question remains: Are you taking full advantage of the opportunities in the residential market? If not, get to work.   

(Note: all figures available upon request)

KELLY, a former editor of ELECTRICAL CONTRACTOR, is a Baltimore, Md.-based freelance writer and author. Reach him by e-mail at writerjmk44@comcast.net.