Equipment Rental Revenues Grow As Rental Penetration Continues To Climb
As the economy continues to pick up across construction, industrial and consumer categories, equipment rental – and rental revenues — continue their upward advance as well. This positive trend is expected to continue at least through 2019, according to the American Rental Association (ARA). The national trade organization tracks equipment rental in all categories.
“The equipment rental industry continues on an upward trajectory and is expected to show significantly strong growth through 2019.” That’s according to Christine Wehrman, ARA executive vice president and CEO. “Some specific market conditions may change,” she says, “but rental companies are agile and can adapt their inventory and fleet to fit what the market demands.”
Total U.S. rental revenue was up 4.9% in the first quarter of this year, compared to an increase of just 0.2% in the country’s gross domestic product. As of May, the ARA was predicting total rental revenue would be grow by more than 9% in the latter half of 2015.
The ARA Rental Penetration Index issued in February noted that rental penetration in the construction/industrial grew from 52.9% in 2013 to 53.9% in 2014. In other words, more than half the nation’s fleet of construction machines is owned by equipment rental companies, and that percentage is increasing. The ARA says more machinery is being purchased expressly for rental fleets, directly from manufacturers. This pushes the penetration ratio up even further.
The ARA predicted investment in rental equipment by rental companies would jump 8.3% in 2015.
So where are we now?
In August, the American Rental Association updated their five-year forecast. While numbers were modified slightly downward, they still show significant growth. For example, revised projections through 2018 show a growth rate of more than 7%, down from a 7.9% prediction in May. Total rental revenue is now expected to be around $38.3 billion by the end of this year.
The revised forecast notes that some sectors – notably mining, oil and gas – have weakened, whereas both commercial and residential construction are growing. Construction should see strong growth over the next few years. Based on this, the ARA now predicts equipment rental revenues will increase by 7.3% this year, eventually reaching $50.6 billion in 2019. (In May, they suggested 2019 equipment rental revenues would reach $51.3 billion.)
Why is equipment rental such a “growth industry”?
Fleet managers for construction companies of all types are making a conscious decision to change the make-up of their fleets, purchasing less and relying more on rentals. They’re looking to conserve capital to use in other ways. They’re also looking for better control over cash flow and equipment scheduling for upcoming jobs.
In many instances, renting is simply more cost-effective than owning. Equipment that will be needed only for a few weeks or months cannot produce a strong enough return on investment to justify purchase. Renting eliminates additional out-of-pocket expenses from insurance to regular maintenance. And if something goes wrong, the machine goes away and is replaced with another one. No fuss, minimal downtime.
Renting is also efficient, allowing fleet managers to fill gaps in work schedules rather than delaying work because machines aren’t available to move from one project to another. Contractors also point to attachments and specialty as rental preferences. Items that aren’t used often aren’t worth warehousing.
Rentals are more important than ever for dealerships.
With customers turning toward rentals more often, dealers are beefing up their rental fleets to accommodate those customers.
Smart dealerships also see their rental fleet as a try-before-you-buy sales enhancement opportunity. With price tags every higher on new equipment, customers want to be certain they’re making the right choices for their permanent fleet. Renting gives fleet managers and equipment operators a chance to “interview” machines in real work environments.