Piper Jaffray, in partnership with RER, introduce a Rental Sentiment Index developed to serve as a leading indicator for the construction equipment rental industry based on data from their new monthly Rental Sentiment Survey. The 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. The Rental Sentiment Index is standardized on a scale from 1 to 10, with 1 signaling a significant downturn and 10 signaling significant expansion in the current calendar year. The October 2013 Rental Sentiment Index of 6.2 signals modest-to-moderate expansion activity ahead in equipment rentals.
According to the inaugural survey, 53 percent of respondents expect their 2013 rental revenue growth year over year to exceed 7 percent and 20 percent of respondents expect their 2013 rental revenue growth to exceed 15 percent year over year. Only 8 percent of respondents expect rental revenues to decline in 2013.
“Demand for rental equipment is very strong with construction on the upswing,” one respondent said.
Seventy-five percent of those surveyed expect rental rates to be flat-to-up 4 percent in 2013. Survey participants see “continued pricing pressure” with “no real boost in rates.”
“Decelerating rental rates are consistent with increasingly difficult rate comps and blended rates that are approaching all-time highs,” said George Tong, research analyst, Piper Jaffray. “We believe rental revenue growth acceleration this cycle will be driven by volumes, not rates.”
Fifty-four percent of those surveyed expect rental volumes to be up at least 5 percent, and notably, 23 percent expect volume growth in excess of 10 percent. Volumes are benefiting from “utilization of inventory that’s rising” and the secular shift from owning to renting, with one participant noting, “rental use by contractors is here to stay.” Of those surveyed, 41 percent indicated their outlook on the equipment rental industry as “slightly improved” or “significantly improved” compared to their sentiment last month.
Twenty-six percent of respondents expect 2013 rental time utilization of 60 to 69 percent, while 12 percent expect time utilization to range from 70 to 79 percent. In addition, 61 percent of respondents expect positive rental capital expenditure growth in 2013, with 20 percent expecting growth greater than 16 percent.
The Rental Sentiment Index is quantitatively derived by normalizing multiple choice responses from the survey to be on a 10-point scale, aggregating the normalized responses based on predetermined weights for each survey question and weighting responses by participants based on the size of their rental operations. The Rental Sentiment Index is designed to provide a quick summary of each month’s survey results and easily tracks changes in the industry outlook over time.
The survey population consists of executives and senior managers in the construction equipment rental industry covering every region of North America representing more than $13 billion in annual revenues. October results are based on a sample size of 122 respondents. Forty percent of survey respondents indicated their company has more than $10 million in annual revenue.
Piper Jaffray is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors since 1895. It is headquartered in Minneapolis.
RER has covered the equipment rental industry since 1957, providing its readers with a mix of news, features and product information. For more information, visit www.rermag.com.
