The global heat pump market is moving rapidly from “alternative technology” to core building infrastructure, with new forecasts suggesting the sector is on course for explosive growth over the next decade.
According to new analysis from Future Market Insights (FMI), the global heat pump market is expected to grow from $61.7 billion in 2026 to $167.4 billion by 2036, representing a compound annual growth rate (CAGR) of 10.5%. The driver is no longer early adopters or green-minded consumers… it’s regulation, economics and structural change in how buildings are designed, financed and heated.
From Policy Nudge to Policy Mandate
What’s changed is the nature of demand. Heat pump deployment is increasingly being driven by binding electrification policies, rather than voluntary upgrades.
Across Europe, North America and parts of Asia-Pacific, governments are tightening emissions standards for buildings, restricting new fossil fuel heating installations and backing electrification with grants, tax credits and carbon pricing. Combined with volatile gas and oil prices, the economic case for electrified heating is now aligning with regulatory necessity.
In practice, this means heat pumps are no longer being installed because they’re “nice to have”, but because they’re increasingly the only compliant option.
Key forces reshaping demand include:
- Building electrification mandates
- Installation bans on new fossil fuel systems
- Carbon pricing and emissions compliance requirements
- Subsidies and rebates reducing upfront costs
- Long-term exposure to gas and oil price volatility
Technology Has Caught Up With the Ambition
For years, performance limitations (particularly in colder climates) were a brake on large-scale adoption. That barrier is now rapidly eroding.
Advances in inverter-driven compressors, enhanced heat exchangers and intelligent system controls are delivering more stable performance across a wider range of conditions. Cold-climate heat pumps, once niche, are now unlocking markets historically dominated by gas and oil.
Seasonal efficiency improvements are also reshaping system design and specification, pushing heat pumps further into mainstream retrofit and new-build projects alike.
Key technology trends include:
- Variable-speed compressor adoption
- Improved low-temperature heating capacity
- Advanced diagnostics and smart controls
- Higher SCOP and SEER ratings
Refrigerants Become a Strategic Decision
Environmental regulation is also reshaping what kind of heat pumps are being sold.
Low-GWP refrigerants are no longer a future consideration… they are already influencing procurement decisions today. FMI estimates that natural refrigerant systems account for nearly 23% of the market in 2026, with growing uptake of propane (R290) and CO₂-based systems.
For manufacturers, installers and specifiers alike, refrigerant choice is now about future-proofing assets against tightening F-Gas regulations and meeting the expectations of green finance and public funding schemes.
Drivers behind the refrigerant shift include:
- Compliance with F-Gas and global GWP regulations
- Risk reduction against future refrigerant bans
- Alignment with green finance requirements
- Long-term regulatory certainty
Residential Retrofits Dominate Market Value
While commercial and light-industrial systems are growing steadily, residential applications remain the engine of market expansion, accounting for more than 55% of total market value.
Much of this growth is retrofit-led, as aging boilers reach replacement age just as policy and pricing make fossil fuels less attractive. Air-to-air heat pumps, with their relative installation flexibility, continue to dominate, holding around 46% of the technology mix.
Ductless systems, in particular, are gaining ground in retrofit-heavy markets where full heating system replacement is either costly or disruptive.
Regional Growth Mirrors Policy Intensity
Europe continues to lead on deployment thanks to aggressive decarbonisation targets, while Asia-Pacific markets are accelerating rapidly on the back of urbanisation and domestic manufacturing capacity. North America, meanwhile, is being pulled forward by a mix of incentives, grid modernisation and smart-home integration.
Projected national growth rates (2026–2036) include:
- Germany: 12.1% CAGR
- Japan: 11.8% CAGR
- France: 10.9% CAGR
- Canada: 10.6% CAGR
- United States: 10.2% CAGR
Competition Shifts Beyond the Hardware
As the market matures, competition is moving beyond headline efficiency figures.
Manufacturers are increasingly differentiating through system integration, installer training, service infrastructure and compatibility with wider energy systems. Heat pumps are being positioned not just as heating appliances, but as interactive energy assets capable of responding to price signals, grid constraints and on-site renewables.
Key competitive strategies now include:
- Modular and scalable product platforms
- Smart building and IoT compatibility
- Expanded installer training and support networks
- Partnerships with renewable energy and energy-services providers
Heat Pumps as Core Infrastructure, Not Just Technology
By the mid-2030s, heat pumps are expected to be treated less like specialist equipment and more like default building infrastructure, akin to electrical wiring or broadband connectivity.
As buildings become digitally connected and energy systems increasingly interactive, smart heat pumps are emerging as gateways to demand response, time-of-use tariffs and grid optimisation. For households and small businesses, this opens the door to active participation in the energy system rather than passive consumption.
The implication is clear: heat pumps are no longer just about decarbonising heat. They are becoming foundational to how buildings interact with energy markets, finance and digital infrastructure.
For the industry, the next phase will be less about whether heat pumps scale, and more about how well the sector manages quality, accountability and system integration as electrified heating becomes the global standard.