The rental industry continued to be optimistic, according to Piper Jaffray’s Rental Sentiment Service for July. The survey, conducted in partnership with Rental Equipment Register, gauges the outlook of the construction equipment rental industry. The Rental Sentiment Index registered 6.4, in keeping with recent expansionary readings between 6 and 7. This month’s results were based on responses from 98 survey participants, and they point to healthy consistent growth in commercial and industrial construction, as well as increased favoring of rentals over buying.
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.
This month’s 6.4 reading matched the record high for the index. 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 6.4 reading signals moderate rental expansion. Moderate industry growth encourages the ongoing secular penetration of rentals and mitigates against over-investment in the rental fleet, said Piper Jaffray.
The findings demonstrate a moderate growth environment for equipment rentals, which is optimal for the ongoing secular penetration of rentals. The penetration of rentals in the U.S. has increased from 39 percent in 2008 to 53 percent in 2013. Findings suggest there is room for the rental mix to increase to the high-50s/low-60s over the next several years driven by muted capital availability, a choppy path toward economic recovery, low utilization of owned equipment, rising Tier IV compliance costs, and greater equipment availability and selection under the rental model.
Survey participants indicated that they expect the rental industry to grow at a healthy 7 percent year over year for the next twelve months, along with 6-percent rental volume growth and 2-percent rental rate growth. There is a consensus among participants that "construction is growing," fueling an increase in demand for equipment rentals. As a result, participants are anticipating "steady growth for quite some time," reaffirming the view that the rental industry is in the early innings of a multi-year expansion cycle. However, rental rates continue to give some industry leaders pause, with rates characterized as "still too low." Some have also noted heightened competition and "shorter-term rentals."
