Multi-family homes: The untapped opportunity for decarbonising heating

There are more than 100 million of multi-family dwellings in Europe and most of them are currently relying on fossil-fuel heating. Decarbonising these homes is more complex than single-family homes but the "size of the prize" is huge, potentially capturing a segment with an opportunity value of up to c. €15-20bn by 2035.

The opportunity and challenge of multi-family homes

Around 48% of EU residents live in multi-family dwellings, with this share rising above 70% in the major cities. These homes account for roughly a quarter of Europe’s heating demand, with almost 65% using fossil fuel boilers. If Europe is to meet its climate goals, this segment cannot be left behind.

Decarbonising heating in multi-occupancy buildings is very complex, however. With no single default solution and a wide variety of building types, ownership structures and planning/noise restrictions in most urban areas, it requires a different approach, and a broader toolkit of technologies compared to single-family homes.

Heating stock in multi-family buildings in: Belgium, France, Germany, Italy, the Netherlands, Poland, Spain and the UK

Solving the retrofit challenge in multi-family homes

Current heating solutions installed in multi-family homes vary widely between countries, which means a range of retrofit paths is needed (explored further on Spark, for subscribers or start a free trial). The most common solutions generally are:

• Individual gas boilers: can be found in just over 38 million multi-family dwellings, and these are typically replaced with similar gas boilers. Hydronic heat pumps can also be a replacement option, but they face several barriers such as unfavourable spark spread, higher capital cost and indoor space constraints. Air-air heat pumps are emerging as an add-on solution in several countries, capable of heating in the shoulder months, but also providing cooling.
• Collective gas and oil boilers: supply heat to over 27 million multi-family dwellings. Decarbonising these systems with collective heat pump solutions in emerging, especially in Germany, Italy and France.
• District heating: has a high penetration in multi-family homes in Poland (accounting for c. 70% share) and plays important role in Germany, France and Netherlands. Existing heat networks are looking to decarbonise and can integrate large-scale heat pumps, waste heat, or use geothermal heat sources, enabling emissions reductions without requiring major changes inside the multi-family dwellings.
• Direct electric heating: has a significant share in France, Spain and the UK. Air-air heat pumps are well positioned to replace/complement these and they are also able to provide space cooling, offering a solution to the increasing overheating problem in multi-family homes.

What are the low carbon options for new-build multi-family homes?

Almost 0.7 million new multi-family homes are built each year across the top eight European heating markets. Currently around one third have hydronic or air-air heat pumps installed, 31% are connected to district heating, and around a quarter still use individual or collective gas boilers. In terms of the direction of travel, we expect the following main technologies to have a role in new build multi-family homes:

• District heating: will be the preferred choice in areas with existing infrastructure and mandatory connection requirements. However, these networks are not always decarbonised so the carbon impact and their future upgrade pathway can vary significantly.
• Hydronic heat pumps: adoption will grow, helping developers comply with the increasingly strict new build regulations. The share of collective heating systems with large/cascade HPs will also be growing in some countries.
• Air-air heat pumps: will be increasingly adopted. As overheating is already a challenge in new build multi-family homes, building developers will be looking for suitable and economically attractive solutions to provide cooling alongside space heating.
• Direct electric heating: will be increasingly installed in some countries as an attractive low-cost option.
• 5th generation district heating systems: are emerging as a promising long-term option (explored further on Spark or start a free trial). Using ground or air as the heat source, these low-temperature networks operate with water-water heat pumps in each apartment. While these offer long-term decarbonisation potential, they remain a high capital expense option to install and scale up, which limits near-term feasibility in many buildings.

Why will a mix of heating solutions be needed?

While new multi-family homes are increasingly adopting low carbon heating, mainly driven by regulations, the largest opportunity lies in decarbonising the existing apartments across Europe (which, according to our research, could reach up to c. €11-15bn by 2035). These homes vary by age, layout, ownership structure and available space meaning that no single low carbon heating technology can meet all needs.

Evolution of heating sales in multi-family dwellings*

*In 8 countries: Belgium, France, Germany, Italy, the Netherlands, Poland, Spain and the UK

The large segment of multi-family homes with individual gas boilers offers a significant opportunity but will also be the hardest to decarbonise. We expect that these dwellings will continue to retrofit individual gas boilers, unless the spark spread and high installed cost of hydronic heat pumps are addressed or regulatory requirements (eg. minimum efficiency) implemented.

We see encouraging opportunities in retrofitting the sizeable segment of gas and oil collective heating systems with large capacity heat pump systems, and, in some cases, via the emerging solution of heat pump energy modules (which can help overcome challenges around space constraints and refrigerant restrictions inside the buildings).

District heating will play a role in decarbonising existing multi-family homes in the areas located close to heat networks, but penetration into the wider building stock will prove challenging due to the associated high-cost and disruption of connecting.

We expect good opportunities for air-air heat pumps, mainly as replacement of direct electric heating systems, but also as add-on solutions, their uptake driven by the growing requirement for cooling.

Therefore, a combination of various solutions will be essential to set these dwellings on the journey of decarbonisation. Although challenging, various technical solutions are available to decarbonise heating in multi-occupancy buildings. This presents a major opportunity for suppliers and developers to innovate and shape the next phase of the heating transition.