Residential construction is down; non-residential is strong for now. That seems to be the weather forecast most of the rental industry is looking at for the remainder of 2007 going into 2008. But, after about three years of boom time in North America's rental industry, the outlook is far less robust in most geographic regions and customer sectors, with a slowdown in residential construction being the primary reason.

That said, non-residential construction continues to show strength. Speaking to rental people around the country, many say business is vibrant, customers are busy and utilization remains high. But a far more cautious approach to equipment purchases and a consensus that the days of double-digit growth have passed for awhile is the dominant outlook across most of North America.

Whichever way you look at the construction landscape, it's clearly a varied patchwork. One region might appear to be weakening, but a few big projects in a particular city tip the scales. As Ken Simonson, chief economist for the Arlington, Va.-based Associated General Contractors of America, says: “It's a big cake, with a lot of raisins in different spots.”

Simonson points to growth in the manufacturing sector as an illustration of the “raisin” concept. “Manufacturing plants are scattered here and there,” he says. “Obviously you don't have manufacturing everywhere in the country, or companies adding factories, but there is quite a variety of types of factories and locations. Recently a German steel maker announced it will spend $4 billion to put in a plant to make steel and stainless steel near Mobile, Ala. Toyota just completed a truck plant near San Antonio and is going to build a $1 billion-plus factory in Blue Springs, Mo. Honda is halfway through a $500 million plant in Indiana.”

So companies in the right market at the right time might find big jobs in their backyards. Other rental companies that have long targeted the industrial market are finding current conditions strong in that sector.

“Warehousing is good and industrial rehab jobs are very strong,” says Jim Dietz of Franklin Park, Ill.-based National Lift Truck.

“We have a good backlog of work for manufacturing-related rentals, road work and plant shutdowns,” adds David Griffith of Bristol, Pa.-based Modern Equipment.

Another construction bright spot is the hospital market, partly driven by the aging of North America's population. “Hospital construction seems to be strong everywhere,” Simonson says. “Particularly in California where you have seismic retrofit requirements forcing hospitals to spend billions of dollars in addition to the technological catch-up hospitals are facing to try to accommodate new equipment for diagnosing and treating, or operating on patients,” Simonson says.

Most geographic regions seem to have hot and cold spots. Cities such as Charlotte, N.C., Jacksonville, Fla., New York, Dallas and Houston are enjoying robust construction environments, while one might not have to drive too far away to find different circumstances. Chicago and Phoenix have a number of big projects going on, and big hotel-casino projects in Las Vegas seem to balance out the slowing housing. Recovery efforts have driven construction in the Gulfport-Biloxi area in south Mississippi and in and around New Orleans. Cities such as Slidell and Baton Rouge, La., where populations swelled post-Katrina have seen considerable construction activity.

“We've had a big influx since the hurricane,” says Ralph Kastner of Tuff Equipment Rentals, Slidell, La. “A lot of the people from suburbs like St. Bernard where there was major flooding moved up here. It seems like every time you turn around they are putting up something new.”

In some regions, growth is more vital away from the big cities. “In California, for example, smaller cities such as Merced, Bakersfield and Riverside, outside of major metro areas are growing more than the major metropolitan areas are,” says Nick Mavrick, vice president of global strategy and marketing for Volvo Rents.

We'll leave the light on for you

The Motel 6 may not be the hotel of choice for most people in the rental industry, but few would mind renting equipment for its construction. And hotel construction is a strong market now and is likely to remain so for a while.

“The vacancy rate at hotels has been declining for years since 9/11 and the average room rates have been rising, so the expected return on hotels is very favorable,” says Ed Sullivan, chief economist and staff vice president for the Skokie, Ill.-based Portland Cement Association. “You have other conditions contributing: the economy is still growing, a weak dollar attracts foreigners into the U.S., and prevents Americans from going overseas in favor of vacations at home because they will be cheaper. Hotels grew by 45 percent last year and we expect a 36-percent gain in 2007.”

Office building construction has been strong so far in 2007 with a 26-percent increase and massive projects in New York, Chicago and other cities. Shelbourne Development is breaking ground on a $1 billion-plus Chicago high-rise that would be the tallest in North America and several large skyscraper projects are getting started in New York.

Stadium construction continues to look promising with major projects such as new stadiums for the Dallas Cowboys, New York Giants and Jets, and baseball stadiums for the New York Mets and Yankees, and Washington Nationals in various stages of construction.

New York state of mind

New York is a booming construction market right now with stadium and skyscraper projects and more, with work trickling down to smaller contractors and rental centers. “From where we are, we see business continuing to go up,” says Tony Perrota of TP Rental Services, Brooklyn, N.Y. “There is a lot of demolition now, so a lot of plumbing, electric work and carpentry will follow. We indirectly get work on the big stadium projects from some of the subcontractors we do business with. There are five Empire State Building-size jobs going on right now, including Freedom Tower and Trump Plaza.”

Other rental companies in the New York area report strong non-residential business, from small and large contractors, for small and large equipment. Site work, roadwork and underground transportation projects are creating significant demand, rental owners say. Independent rental companies play a strong role in The Big Apple, and United Rentals, headquartered not far away in Greenwich, Conn., has three branches in Manhattan.

Texas is bigger than it used to be

Mark Chestnutt wasn't thinking about 2007's rental market when he wrote that song, but it's an apt description nonetheless. Although earlier this year some Texas rental customers were probably thinking of building an arc — it rained 44 consecutive days at one point over a 50,000-square-mile area — construction has been strong in the Lone Star state and rental companies doing business in the state have been enjoying solid demand, especially in Houston and San Antonio.

School construction has been vibrant with Texas outpacing the rest of the country in that area. Overall commercial construction is strong and to this point the drop-off in residential hasn't affected the state as badly as most of the rest of the country, according to rental people in the area, with house inventories not as high or moving as slowly as in most areas.

“It's amazing how many strip centers we can build here,” says Steve Watley of Champion Rentals in Houston. “There's a lot of work here in remodeling, and a lot of new construction in strip centers, shopping malls and parking facilities.”

“Work is very strong, whether it's commercial site work or residential,” said Howard Hicks of San Antonio-based Holt Cat Rentals. “Retail and industrial is very strong, as is oilfield business exploration and oil site projects.”

“Any economies based on oil have been strong,” adds Jim McCullough, president of Case Construction Equipment (see accompanying story on page 32).