Rental Industry Forecast to Surpass $32 Billion in 2013

For many industries and individuals, the economy of the past several years has been devastating. These are facts to which no one is immune. Consumed by the uncertainty of both the United States and other global economies, many industries have suffered crippling financial losses and as a result millions of workers have lost their jobs.

All this tumult and insecurity, however, has led to very positive revenue and utilization growth for the equipment rental industry, corresponding with recent Baird/RER equipment rental surveys, which showed four consecutive quarters of double-digit growth followed by slightly more moderate single-digit growth in the most recent quarter surveyed. More contractors and homeowners are turning to equipment rental to supplement their equipment needs instead of investing their dollars into new equipment and fleet purchases — a veritable boon for the rental industry.

Hitting a sweet spot in 2011, as reported in my 2012 rental industry forecast in RER magazine in February 2012, the equipment rental business maintained its hold on that sweet spot well into 2012 and, in our opinion, the market will benefit from a number of tailwinds allowing it to continue growing at double-digit rates into 2014 and perhaps beyond. Overall, we are forecasting that 2013 U.S. rental of construction equipment will increase 16 percent to more than $32 billion.

The Growth of Construction Equipment Rental

Year	Estimated Number Locations	Estimated Rent Revenue per Location (thousands)	Estimated CE Rentals Industry Rent Revenue (millions)	% Change from Previous
2013	14,100	$2,313	$32,615	16%
2012	13,975	$2,019	$28,224	12%
2011	13,830	$1,822	$25,200	17%
2010	14,208	$1,518	$21,571	-15%
2009	14,648	$1,733	$25,377	-30%
2008	15,750	$2,302	$36,253	-4%
2007	15,865	$2,372	$37,636	8%
2006	15,708	$2,218	$34,848	20%
2005	15,400	$1,886	$29,040	9%
2004	14,000	$1,895	$26,530	11%
2003	14,005	$1,723	$23,927	1%
2002	13,250	$1,790	$23,717	-4%
2001	13,500	$1,837	$24,800	0%
2000	13,932	$1,780	$24,784	3%

The economic uncertainty that has prevailed for several years has actually been a big benefit for the rental industry. Equipment users facing an uncertain future have turned to renting as a way to conserve cash. Renting is also an alternative for users who may be unable to obtain equipment purchase financing. The case for rentals is still strongest for equipment users that are utilizing their machines 50 percent of the time or less. Anyone who has a need for a production machine that is a primary tool in their fleet would be better off purchasing it.

EPA emission regulations that began Jan. 1, 2012 have also benefitted equipment rentals. The regulations require many new machines built after Jan. 1, 2012 to be equipped with Tier 4 interim engines. Machines equipped with Tier 4 interim engines are considerably more expensive than machines with Tier 3 engines. Uncertainties remain regarding the operating performance of these units. Preliminary indications are that the new engines are more expensive to operate as well. The higher operating cost indications are based on the experience of on-highway truck users who have been operating Tier 4 engines since 2010. The higher machine purchase price and possibly uncertain operating performance also have caused uncertainty over the future residual values of new machines, which is another factor that has driven users to favor rentals.

Recent data indicates that 52 percent of all new machines sold are going into the rental fleets of national rental companies, authorized dealer rental fleets and rental fleets owned by independents.

Traditionally the rental industry's fortunes have closely followed construction employment. However, after reviewing recent data it appears the close correlation between employment and rental revenues did not exist in 2012. We attribute the lack of correlation to economic uncertainty, which is hard to measure and put on a graph.

Our forecast for the economy as a whole is for slow growth. The 2013 market will benefit from an improving housing market, continued high levels of demand from the energy sector and improving non-residential construction investment by manufacturers. Overall we expect 2013 growth of equipment sales to be approximately 5.4 percent compared with 2012. We expect the sales slowdown that began in the second half of 2012 to extend into the first half of 2013, with most 2013 growth occurring in the second half. Assumptions for the construction sector are illustrated in the chart titled: “Value of Construction Put in Place.”