By Kate Campbell
Many homeowners in California have removed their lawns and replaced them with drought-tolerant plants in response to four years of drought.
Photo/Steve Adler
Drought and economic recovery are driving change in California’s commercial and residential landscape sector—change that has been wrenching, but provides new opportunities for growth. Financial experts are confirming what many of the state’s major landscaping companies say are improving market conditions.
“Right now, based on the economy, we’re in an upswing,” said Steve Mills, general manager of Lodi-based Odyssey Landscaping. “Dirt’s being turned over and some projects that were on hold during the recession are coming to the forefront.”
Industry analysts say the sector’s national sales growth was more than 16 percent last year, compared to a 7 percent drop in 2009 during the recession. The outlook for the sector’s 2015 revenue is for more dynamic growth, financial analysts report.
What’s driving the upbeat economic forecast in California, they say, is increased construction and development activity, along with renovation and conversion of large commercial landscapes to low-water use plants and designs. At the same time, many homeowners are converting their lawns to a more drought-tolerant landscape.
“A lot of the stuff going in the ground today is designed for drought resistance,” he said. “A good 40 percent of the plans that were on the drawing boards before the drought are being re-evaluated before installation to meet new water-saving regulations and meet requirements of customers’ water budgets.”
Some changes in design are related to selection of drought-tolerant plant material—succulents and native plants being more frequently called out by landscape architects—some changes are related to new state and local landscape ordinances, and some changes are due to advances in irrigation technology, as well as new designs for hardscapes, Mills said.
How water is being applied has changed a lot, said Mills, who has worked in commercial landscaping in California for decades. Today’s commercial landscapes rely more heavily on micro-irrigation technology, drip tapes, advanced controllers and sensor systems, he said.
“The kinds of irrigation systems seen in agricultural operations are being heavily used in commercial landscaping,” Mills said. “Particularly in shrubbery, but buried drip lines also are being adopted now in lawn areas, which eliminates overhead spray and applies water directly to turf roots.”
While lawns are getting smaller and have been out of favor during the drought, irrigation technology allows for more efficient water use on lawn areas, particularly in large commercial or public spaces, he said.
Part of the so-called California Green Industry, commercial landscaping makes about a $25 billion annual contribution to the state’s economy, including multiplier effects, and accounted for more than a quarter million jobs, economic researchers said in a 2011 report for the California Landscape Contractors Association.
The sector relies heavily on the state’s horticultural growers for plant materials. In terms of crop production, nursery stock, flowers and foliage are among California’s top 20 commodities.
“Anecdotally, our members are telling us that commercial and residential property owners are hyper-focused on the drought,” said Sandra Giarde, California Landscape Contractors Association executive director. “The drought is definitely impacting business. There is a lot more interest in revamping irrigation system and putting in plants that use less water.”
On the commercial side, she said property owners are working more with water budgets and they’re investing in advanced irrigation technology and updating practices.
The extent to which commercial landscaping will need to be rehabbed or replaced remains to be seen, she said, referring to unknowns created by the drought. The health of major landscape features such as large trees and shrubbery will need to be evaluated in the future by arborists and other plant experts.
“We’re already talking about the impact of the drought on trees,” she said. “We’ve been trying to get the word out that lawns can go brown, but trees need water and mulch. How much that message is sinking in, we don’t know.”
Segments of the state’s green sector include wholesale nursery, greenhouse and sod farmers; landscape architects, contractors and maintenance firms; marketing companies such as brokers, horticultural distribution centers and retail garden centers; home centers and mass merchandisers with lawn and garden departments. In addition, many state and local governments need landscape materials and management, including parks, botanic gardens and right-of-ways.
“So far in the drought, we’ve observed that the various government sod replacement programs have been very successful and the interest has outstripped the pot of money available, but it has helped jump start a lot of folks to do some landscape conversions,” Giarde said. “What the role of turf will be as we come out of the drought remains to be seen.”
Although there are many economic uncertainties for the commercial landscape sector, analysts said retail sales of horticultural goods have increased for both independent and chain-store type retailers. However, the recession has forced considerable consolidation throughout the sector from service companies to wholesalers and retailers.
That has had a big impact on nursery operations with more than $100,000 a year in sales. California accounts for about 15 percent of total U.S. value of bedding and garden plants, the U.S. Department of Agriculture reported. In 2013 (most recent numbers available), the wholesale value was $299 million, down 4 percent from 2012.
Sageworks financial analyst Libby Bierman offered a relatively upbeat forecast for the commercial landscape sector and by extension plant-stock suppliers. She noted net profit margin for the landscape services sector nationwide has been relatively stable, and current data indicate the sector is poised for healthy growth.
“Our data is national, but what’s happening is sustained sales growth,” Bierman. “In 2014 there was more than 16 percent growth in sales, which is high for any industry average.”
She called drought in California a “wildcard” because she said it’s hard to anticipate the extent developers and property owners will scale back or revamp landscaping. But she anticipates continued business for renovation and rehabilitation. In the long term, that could mean less investment in landscaping and management services.
“Construction was one of the last sectors to rebound from the recession, but it’s now growing faster than many of the other major sectors affected by the downturn,” she said. “The growth we’re seeing—whether residential or commercial construction—means landscaping services are being drawn along with it.”
Given the pluses and minuses of the drought in California, Bierman said the state’s commercial landscape sector has experienced steady growth that she expects will continue, but perhaps not at the current rate.
Thank you to the California Farm Bureau Federation for this article.