During the three years to 2017, office furniture system prices have been rising at an estimated average annual rate of 0.9% to reach about $2,000 per system. Due to the long and useful life of office furniture, demand tends to ebb and flow based on the economic climate. As economic activity has picked up, so has activity in key buying segments, including the healthcare sector and the education sector. As a result, demand has grown, pressuring prices upward.
Strong demand has been partially facilitated by the declining unemployment rate and a growing number of employees during the period. As a result, there has been an increase in demand as businesses have been purchasing a greater amount of furniture to accommodate more employees. Demand growth has led to rising prices, which have adversely affected buyers.
Moreover, trends in input costs have kept prices elevated. Although steel and plastic prices have been falling during the past three years, year-on-year movements in these costs have been highly volatile due to fluctuating global demand and rapidly changing oil prices. As a result, suppliers keep prices elevated to guard against input cost spikes that would hurt their profitability.
Fortunately for buyers, increased import penetration has facilitated price-based competition, helping temper the rate of price growth in recent years. High competition in the market has also helped keep price volatility low in the three years to 2017 despite volatile input costs, enabling buyers to more accurately budget for purchases. Nevertheless, buyers are encouraged to secure office furniture systems sooner than later because prices are forecast to rise through 2020.
In the three years to 2020, office furniture system prices are forecast to rise further at an annualized rate of 1.3%, negatively impacting buyers. Price growth will be supported by growing demand from rising corporate profit and nonresidential construction activity, a growing number of employees and an uptick in production costs.
The value of private nonresidential construction is forecast to grow significantly through 2020. The increase in construction activity will result in more offices, healthcare facilities and schools being built, which will increase the need for office furniture systems. The number of employees is also expected to grow and contribute to rising demand for office furniture systems to accommodate more employees. Moreover, rising corporate profit will enable increased expenditure on furniture. As demand grows, suppliers will be afforded greater pricing power, hurting buyers.
Steel and plastic prices are also anticipated to rise in the three years to 2020. Growth in steel and plastic prices, key inputs in office furniture systems, is anticipated to lift suppliers’ production costs. As suppliers’ costs rise, especially in light of the volatile nature of input prices, they will raise market prices to protect their margins.
Fortunately for buyers, import penetration will continue to drive competition and temper price growth, while price volatility is expected to remain low through 2020. Therefore, despite the disadvantageous pricing trend, buyers will be able to shop around knowing that prices will not rise or fall dramatically from year to year, and take their time evaluating suppliers without risk of significantly higher prices in the future. Nevertheless, ProcurementIQ encourages buyers to secure their office furniture systems now to hedge against rising prices in the coming years.