Projections for equipment rentals are solid
More equipment rental companies are becoming problem solvers for the construction industry.
The American Rental Association (ARA) has forecast solid growth for rental companies this year.
Equipment and event rental companies are expected to generate $58.1 billion in revenue in the United States in 2020, up 3.8% compared to 2019, according to the ARA.
Construction and industrial equipment rental is forecast to reach $40.1 billion in 2020 with general tool rental revenue accounting for $14.1 billion and party and event revenue expected to be $3.8 billion.
Total U.S. rental revenue is expected to grow by 4.1% in 2021, 4.2% in 2022 and 3.5% in 2023 to reach $65.2 billion.
“We are in a fairly steady growth pattern with the chances of recession relatively low, keeping rental revenue growth moving higher throughout the forecast period,” says John McClelland, ARA vice president, government affairs, and chief economist.
“The good news is that the U.S. economy will hold to a moderate growth path, and the risk of recession has fallen,” says Scott Hazelton, managing director, IHS Markit, the economic forecasting firm that compiles data for the ARA Rentalytics service as part of a partnership with ARA.
“However, the markets that equipment rental primarily serves are likely to see some challenges. The U.S. economy continues to slow as the impetus from tax cuts, fiscal budget stimulus and interest rate reductions all wear off. Growth will be driven by consumer spending with investment and trade lagging,” Hazelton noted.
He predicts that manufacturing activity will see virtually no growth in 2020 as the dollar remains high, tariffs continue, and the global economy slows.
“Even the energy patch will see limited potential as oil prices sag under weak global demand. Absent a Highway Bill that is unlikely in the current political climate, nonresidential construction will contract while residential construction only holds its own,” Hazelton says.
In Canada, total rental revenue is forecast to top $5.6 billion in 2020, up 2.1% compared to 2019. Rental revenue in Canada is expected to grow 2.3% in 2021, 3.3% in 2022 and 2.7% in 2023 to total $6.1 billion.
In addition to rental revenue, ARA also is reporting an increase in rental penetration over the last two years, ticking up to 55.9% in 2018 and 56.7% in 2019. ARA defines rental penetration as the percentage of construction equipment currently in use in the U.S. that is owned by equipment rental companies.
“One very impressive number in the latest ARA Rentalytics report is the increase of 80 basis points in the Rental Penetration Index from 55.9% in 2018 to 56.7% in 2019. This is one of the main factors that is keeping rental revenues growing faster than GDP [gross domestic product] and in the face of a flat outlook for construction spending,” McClelland says.
The increased penetration of rental equipment into the construction market is due to equipment rental companies having become problem-solving companies that help customers make more efficient business decisions and reducing the uncertainty that comes with making large capital investments in equipment, the ARA said.
“Our view is that this trend will continue for the foreseeable future,” McClelland says.
Based in Moline, Ill., the ARA is an international trade association for owners of equipment and event rental businesses and the manufacturers and suppliers of construction/industrial, general tool and party/event rental equipment. ARA membership includes more than 11,000 rental businesses and more than 1,000 manufacturers and suppliers, in the United States, Canada and more than 50 countries worldwide.
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