According to The Rental Sentiment Survey, conducted by RER in partnership with Piper Jaffrey, the Rental Sentiment Index registered 6.3 in August, in line with recent expansionary readings between 6 and 7 and consistent with last month's 6.4 score. The survey, which gauges the outlook of the construction equipment rental industry, reveals again this month persistent and healthy growth expectations in equipment rentals.
The RSI is based on a 10-point scale, where readings higher than 5.0 indicate expansion, and is derived from expectations for North America commercial and industrial construction equipment rental revenues, volumes, rates, time utilization and capex.
A 6.3 reading signals moderate rental expansion, which is the optimal growth environment for rental companies because moderate industry growth encourages the ongoing secular penetration of rentals and mitigates against over-investment in the rental fleet.
Piper Jaffray partners with RER to publish its monthly Rental Sentiment Survey. The Rental Sentiment Survey gauges the outlook of the construction equipment rental industry by polling industry executives for their expectations on rental revenues, rates, volumes, utilization, capital expenditures and the general outlook for the rental industry. Piper Jaffray designs, administers and analyzes the survey, and RER distributes the survey to executives and senior managers at regional divisions of rental equipment businesses in all regions of the U.S. and parts of Canada, representing more than $13 billion in annual revenues.
Survey participants indicate improving growth expectations for the commercial and industrial equipment rental sector, and the results showed an acceleration in industry growth expectations backed by a stronger outlook for rates and volumes.
Survey participants also revealed improving growth expectations for the commercial and industrial equipment rental sector. According to the results, rental revenues are expected to increase 7.7 percent year over year over the next 12 months, up from expectations of 6.9-percent growth in the prior month. The improving outlook is backed by expectations of higher rental rate growth (2.6 percent year over year vs. 2.3 percent year over year last month) and higher rental volume growth (6.4 percent year over year vs. 5.6 percent year over year last month).
Time utilization expectations ticked up as well, from 50.2 percent in July to 53.1 percent. The capital expenditure growth outlook moderated fractionally, from 5.2 percent year over year to 4.7 percent year over year; however, Piper Jaffray sees this as in line with the industry's improved capital discipline and better time utilization rates.
In addition, the August survey results highlight continued strength in the commercial and industry equipment rental market in North America, with emphasis on improving project-based activity and increasing preference for rentals. Survey respondents note "the outlook is strong for projects", with "numerous projects" having started in the last 30 days. The consensus is that rentals this year have been "robust" with further strength expected "for the next 12 to 24 months."
The strength in rental revenues is being attributed to "higher utilization and larger fleets." Notably, higher utilization is being seen in "aerial and excavation equipment." Respondents attribute the "improvement in demand for" to improving trends in "industrial, energy and construction." They also note "fewer companies are buying new equipment and instead are continually looking to secure rental equipment." For some, rental rates remain an area of focus, noting "pricing continues to be tight." Results are indicative of an early expansion cycle for commercial and industrial equipment rentals, which is typically the last vertical to recover in a macro upswing.
The Rental Sentiment Survey had 88 participants in August. Respondents represent construction equipment rental companies with annual revenues ranging from less than $1 million to more than $200 million. Approximately 35 percent of survey participants are affiliated with companies with more than $10 million in annual revenues, placing them in the top 100 of the largest rental companies in North America.