After two years of rapid post-pandemic revenue growth in 2021 and 2022, the equipment rental industry is expected to settle into a steady pattern of single digit increases over the next four years according to the latest American Rental Association (ARA) forecast released in early November.
The forecast calls for equipment rental revenue — which includes the construction and industrial as well as the general tool segments — to increase by 3.4 percent in 2023 to nearly $57.7 billion after growth of 11 percent in 2022 to reach almost $55.8 billion.
In subsequent years, equipment rental revenue is expected to grow 2.9 percent in 2024, 3.3 percent in 2025 and another 3.4 percent in 2026 to reach nearly $63.4 billion.
“In the current forecast we see a definite softening in rental revenue growth, but we do not see negative growth,” says John McClelland, Ph.D., ARA vice president for government affairs and chief economist.
“The continuing growth in rental revenues over the forecast period is countercyclical to the forecast for the overall economy. I attribute the countercyclical economic behavior of the rental revenue forecast to the infusion of funds for infrastructure resulting from the passage of the bipartisan Infrastructure Investment and Jobs Act signed by President Biden on Nov. 15, 2021,” McClelland says.
“While this may be good for the equipment and event rental industry as a whole, the benefits will not be evenly distributed. For example, rental businesses that are focused primarily on the residential housing sector will have to adapt their focus and customer base due to forecasted declines in that sector,” he says.
The construction and industrial segment, according to S&P Global Market Intelligence, the forecasting firm that compiles data for the ARA forecast and the ARA Rentalytics™ subscription service, showed double-digit revenue increases in 2021 and 2022 at 10.2 and 12.7 percent respectively. The segment is forecast to show a 4 percent increase in 2023, 2 percent in 2024, and 3 percent in 2025 and 2026.
On the general tool side, revenue growth was a more moderate 4.5 percent in 2021 and 6.2 percent in 2022 and is forecast to be 1 percent in 2023 and then 5 percent in 2024 and 2025 and 4 percent in 2026.
“There is variability in the forecast, depending on the end markets rental companies serve. However, nonresidential construction spending will be strong, and money continues to be spent from government stimulus programs, which both are positives for the rental industry,” says Tom Doyle, ARA vice president, association program development.
“In addition, the supply chain is improving, which can help alleviate the backlog of equipment orders, allowing equipment rental companies to expand inventory to meet demand, which adds to the positive outlook for the industry in 2023 and beyond,” Doyle says.
Scott Hazelton, director, S&P Global Market Intelligence, agrees that the outlook for the equipment rental industry is positive but adds that a slowdown is coming with a recession and an anticipated reduction in demand.
“We had been forecasting something perilously close to a recession last quarter, and the evolution to a mild recession was not unexpected. What has been surprising is the resilience of the equipment rental industry in an economy that is not particularly strong, particularly in traditionally rental-intensive markets, such as nonresidential construction,” Hazelton says.
In addition, according to S&P Global Market Intelligence, investment in construction and industrial equipment now is expected to decline slightly in 2023 after growth of 55.1 percent in 2021 and 40 percent in 2022. Investment growth is forecast to be 4.8 percent in 2024 and 6.4 percent in 2025.
In Canada, equipment rental revenue also showed a post-pandemic boost of 15.8 percent in 2021 and 11.1 percent in 2022 to reach $4.6 billion. The same as in the U.S., revenue growth is expected to settle into a single-digit pattern over the next four years.
The ARA forecast calls for equipment rental revenue in Canada to increase by 1.6 percent in 2023, 4 percent in 2024, 5.3 percent in 2025 and 3.5 percent in 2026 to reach nearly $5.3 billion.
“On the whole, Canada’s outlook is very similar to that for the U.S., just a tad milder,” Hazelton says.
ARA survey shows rental markets have stabilized
Both equipment and event rental companies have reached a point of stability after almost three years of a pandemic-induced roller coaster ride, according to the latest economic impact survey conducted by the American Rental Association (ARA).
In answer to the question, “Would you say the situation for event rental is getting better, the same or getting worse?”, 50 percent of the event rental respondents said it was the same in the third quarter of 2022 while 44 percent said it was getting better. Only 6 percent said it was getting worse, the lowest number since ARA began the economic surveys in March 2020.
On the equipment rental side, 63 percent of the respondents said the situation for equipment rental is the same in the third quarter of 2022 with 26 percent saying it is getting better and 11 percent saying it is getting worse.
“I have been traveling the country visiting stores all year and these survey results are right in line with what I’m hearing from rental operators. Stores have made the necessary adjustments in pricing and continue to find operational efficiencies to meet the demand,” says Tony Conant, ARA CEO.
Survey respondents also are optimistic about the future. For example, 81 percent of the event rental ARA members who completed the survey expect revenue to increase in the fourth quarter compared to 19 percent that expect a decrease compared to last year.
Of those responding to the survey from the equipment side of the business, 71 percent expect revenue to increase compared to 29 percent who expect a decrease compared to last year.
“Despite several headwinds from inflation, rising interest rates, labor and supply chain issues, these latest survey results show that ARA member companies are generally meeting those challenges and forecasting increases,” says Tom Doyle, ARA’s vice president, association program development.
Event rental members also were asked about rental rates and 93 percent of the event rental respondents said they have increased rental rates in 2022 and three quarters of those who have not raised rates this year said they intend to.
The drivers for rate increases, according to the event rental survey respondents, were almost evenly split between increased labor cost (36 percent), increased fixed expenses cost (30 percent) and increased new inventory or supply purchasing cost (28 percent).