Outlook for the nursery/greenhouse industry in 2016

Jeff Burch
Posted by Jeff Burch
Agribusiness Banking

The nursery / greenhouse industry had a strong year in 2015, and leading indicators suggest that 2016 will continue this trend.

Male greenhouse worker in overalls watering a large row of green plants.Looking ahead, I expect to see growth at 7% (based on this report from Freedonia), driven by real estate and economic indicators, combined with the impacts of weather in late 2015.

Rising demand for landscape

The 2016 outlook for real estate development is positive – especially in the commercial and apartment sectors, according to a joint report from Urban Land Institute and PriceWaterhouse Coopers. We anticipate this trend to impact businesses in the nursery/greenhouse industry as developers seek to beautify their properties through landscaping. Additionally, existing home values are expected to continue to climb in 2016, though at a lower rate than we saw last year, according to the National Association of Realtors.

Rising home values are a key driver for the nursery/greenhouse industry, as they often inspire homeowners to further improve a home’s value through landscape or other outdoor investments. For more information about the connections between housing trends and the nursery/greenhouse industry, see my previous article on the topic.

Discretionary income stirs impulse buys

Economic indicators also point to a strong year ahead for those in the nursery/greenhouse industry. As Chief Economist Scott Anderson noted recently, “Real personal income growth is running well ahead of spending,” and he forecasts up to 3% growth in consumer spending in the next few quarters. This combination means that people will likely have more discretionary income to spend in 2016 than in the previous year. Because greenhouse sales are often impulse buys (e.g., picking up a plant for the front porch), higher discretionary income is another indictor that suggests a strong year ahead for retail greenhouses and retail garden centers.

Extreme weather patterns drive replenishment

The impact of last year’s challenging weather patterns also points to a strong 2016 overall for the nursery/greenhouse industry. In the West, we may see an initial negative impact in the first quarter due to the combination of drought followed by El Niño-related rains, but I anticipate favorable replenishment for the remainder of the year. In Texas, the floods that hit the region in 2015 should also drive replenishment this year. Given the short stock that exists with many nursery stock varietals, price increase opportunities should continue throughout 2016.

While no single indicator functions as a crystal ball for an entire industry, in combination they can offer real insight into the opportunities and challenges that business owners might expect in the year ahead.

At Bank of the West, we stay closely attuned to a host of leading indicators related to the nursery / greenhouse industry. So far, what we’re seeing in real estate forecasts, economic data, and the impacts of extreme weather lead us to believe that 2016 will be another good year for companies doing business in this industry.

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