Summary
Adveco presents research providing an overview of the UK’s commercial water heating market, establishing the baseline against which all future decarbonisation efforts will be measured. In part one we consider the dominance of traditional gas technologies and dissect the factors underpinning their market share…
Adveco presents research providing an overview of the UK’s commercial water heating market, establishing the baseline against which all future decarbonisation efforts will be measured. In part one, we consider the dominance of traditional gas technologies and dissect the factors underpinning their market share…
Commercial Water Heating Overview and Context
The UK commercial water heating market is a significant sub-segment of the broader non-domestic heating sector, which includes space heating and industrial process heating. While precise, standalone market data for water heating is limited, it is a critical component of the overall heating demand for commercial premises such as offices, schools, healthcare facilities, and hospitality venues. The UK Space Heating Boilers Market was valued at approximately £273 million in 2024 and is projected to reach £380 million by 2032, growing at a CAGR of 3.97%.1 The commercial application segment contributes around 26% of this market, with industrial use at 13% and the residential sector leading at 61%.1 This market is distinct from the broader UK water heater market, which was valued at £611.8 million in 2023 and is projected to reach £812 million by 2030, representing a substantial total market.2
A fundamental challenge in assessing this market lies in the collection of data, which often conflates space and water heating. The data from various reports focuses on “space heating boilers,” frequently assuming dual-purpose systems providing both space heating and domestic hot water. The reality is that these systems and approaches to specifications are more likely to be separated in commercial contexts. This means that a comprehensive market view requires synthesising information from multiple, imperfect sources. This data limitation highlights that public and private reports often focus on larger, more easily quantifiable segments (such as boilers) rather than granular, end-use categories (like hot water).
Non-Domestic Buildings & Retrofit
According to the Department for Business, Energy, & Industry Strategy (BEIS) there were 1,755,000 recognised non-domestic buildings in England and Wales at the end of March 2024. Many of these buildings will have been constructed to lower energy efficiency standards and currently account for 23% of the UK built environment’s operational emissions, of which as much as 30% can be attributed to ageing domestic hot water (DHW) systems.
Of these buildings, just 14.6% were constructed after 1996, and considering the rates of new construction, it is easy to see why the UK Green Building Council (UKGBC) estimates that 80% of buildings that exist today will still be here in 2050.3 The vast majority (86%) of organisations underestimate the need to retrofit such buildings to make them more energy efficient. Over a third mistakenly believe less than 39% of the UK’s current building stock will still be in use by 2050. 3
Due to a large majority of businesses occupying old, inefficient buildings that have failed to receive necessary retrofitting, major changes are required for the UK to avoid failing to reach the government’s current net-zero target in 2050. 31% of organisations fear retrofitting’s disruption, 29% lack the bandwidth for such a project, and 25% don’t know how to make a business case for it. 3
Organisations need expert support and clear advice to correct misconceptions. For instance, 45% of those in charge of buildings believe that if the grid is carbon neutral, they don’t need to worry about getting their buildings to net-zero. 24% feel that retrofitting won’t make a big enough difference to their building’s carbon footprint. This is not the case, as a transition from gas to electrical water heating alone can make a considerable impact on carbon reduction.
A lack of government action continues to be perceived as a key problem, and Conservative and Reform parties are already arguing that goals need to be reduced or dates revised as enthusiasm for sustainability wanes.
The Status of Gas-Fired Water Heating
Despite the push for decarbonisation, gas-fired boilers remain the undisputed dominant force in the UK’s commercial heating landscape. Gas-fired boilers hold an approximate 72% market share within the UK space heating boilers market in 2024, this figure equates to the commercial market, a position solidified by the country’s established gas network, user familiarity, and lower operating costs.1 This is further supported by the fact that roughly 85% of UK homes are connected to the gas grid, which provides a useful proxy for the prevalence of commercial gas infrastructure across the country.4
The market is mature. Most commercial buildings remain gas-connected and will have used a gas water heater, a tried and trusted technology that continues to offer a lower cost, in terms of capital and operational expenditure, means of meeting high temperature demands seen in commercial organisations. Consequently, a high proportion of new sales will be replacements for older systems. The widespread replacement of ageing, non-condensing boilers with more efficient condensing models (which hold a 68% share in 2024) demonstrates a shift towards improved energy efficiency, but it does not yet represent a fundamental transition away from fossil fuels. This trend is not unique to the commercial sector; gas boilers are installed at a rate of roughly 1.7 million units per year across all sectors, far outpacing the adoption of heat pumps.5
This has meant that, despite the drive for decarbonisation, like-for-like retrofit continues to be popular. The advantage at least is that the latest generation of gas water heaters offer greater efficiency when burning gas and transferring heat to water, through improved construction of the burner and heat exchanger and smarter operation that maximises heating to hot water demand and reduces lost heat in flue gases. Given that existing systems will have long operational lives, replacing them with anything new is advantageous for all involved.
The installation of a new gas boiler, even a high-efficiency one, locks a commercial property into fuel dependency for the unit’s lifespan, which is around 15 years. Current generation condensing devices will accept up to 20% hydrogen blends without requiring physical alteration. Hydrogen-ready units require parts replacement but would then accept transition to full hydrogen connections. Gas water heaters are therefore now seen as a bridge towards emergent green energy. This assumes hydrogen adoption on a national scale that would support commercial connections. European projects have demonstrated that the purchase of green hydrogen is currently expensive (more so than grey hydrogen), so it would require new subsidies to encourage adoption. This creates a policy and investment risk for asset owners who might be forced to replace a relatively new system prematurely should future regulations or national energy decisions change. Currently, within the commercial space, there is no longer a plan (originally set to be introduced in 2035) to ban the sale of new commercial gas boilers for installation in existing commercial buildings. Under the Future Homes Standard, commercial new build installations are already denied a gas connection, mandating low-carbon heating and hot water systems.
Market Segmentation and Dynamics
The market’s structure is influenced by regional and application-based factors. England, with its dense urban populations and established gas infrastructure, dominates the market with a 58% share. Scotland and Wales, with different heating needs, follow with 17% and 13% respectively. The commercial sector’s 26% share is driven by uptake in schools, offices, and healthcare facilities, a crucial distinction as different building types have varied heating and hot water demands, influencing the technical viability and cost-effectiveness of alternative solutions.
The market’s momentum is tied to the high replacement demand for an enormous existing fleet of gas boilers. Given that there are approximately two million commercial premises in the UK, the vast majority of which rely on gas, a significant portion of annual sales are simply like-for-like replacements. This means a large part of the market’s activity is not new growth but rather a renewal of formerly carbon-intensive infrastructure. To break this cycle, a powerful external force is required, which explains why government policy is so central to the decarbonisation plan. Gas boiler manufacturers continue to recognise the demands for high efficiency replacements, with focus on hydrogen-blend capable and hydrogen-ready boilers and water heaters capable of acting as a bridge to emerging technologies, in particular green gas, but also supporting system integration with low-carbon and renewables capable of limiting natural gas demands. 6
In part two, we will explore the status and adoption rates of the leading sustainable technologies intended to disrupt the gas-dominated domestic hot water (DHW)market…
Read Part 2 | Part 3 | Part 4 | Part 5 |
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