Q3 Rental Revenue Growth Slows to 1.9 Percent, Baird/RER Rental Equipment Industry Survey Shows

Equipment rental revenue in the third quarter of 2024 reported weighted growth of 1.9 percent, the slowest growth post-pandemic and down from a 4.6-percent year-over-year growth in the second quarter, according to the quarterly Baird/RER Equipment Rental Industry Survey. Forty percent of respondents (revenue weighted) reported missing internal budgets in the third quarter, while 8 percent reported seeing better-than-expected results, and 52 percent said results were in line with expectations. The net negative of 32 percent is the fourth consecutive quarter where results were below expectations. A demand slowdown is increasingly visible with growth below pre-pandemic levels, Baird’s analysts noted, with greater than 50 percent of respondents missing internal budgets, a post-COVID first.

“There are multiple factors dragging performance,” stated the research report. “The lagging effect of higher rates on ‘local’ construction, some project pushouts and perhaps some election-related uncertainty. At the same time, fleets have grown with over-fleeting becoming a problem.”

“Jobs are being postponed until next year because of bank rates and cost of materials,” noted one respondent.

 “Local construction is very slow, but we expect (lower) interest rates to keep 2025 steady for small businesses and infrastructure spending to be a mild positive in 2025,” said another.

Utilization for the quarter was up sequentially at 63.4 percent because of the traditionally strong summer season, but still under pressure from fleet growth and moderating demand, respondents said. 

“The market is very weak with tons of fleet sitting unutilized,” said one respondent. “More competition from the large players as their utilization starts to soften.” “Utilization has seen a significant pullback from 2023 levels, creating a more competitive and price sensitive market,” added another. “Due to the lower utilization levels, the availability of new equipment is starting to improve as we are hearing of orders being pushed or canceled.”

Although rental rates were slightly negative for the first time since the pandemic, modest growth is expected in 2025. Average rental rates dropped 0.4 percent year over year, down from an approximate 1 percent growth level during the past three quarters and down from a peak of +5 percent in the fourth quarter of 2022. Respondents expect a 1 percent rental rate growth in 2025.

“Due to the (high) amount of inventory in the market, rental rates have plummeted vs. the continuous rising costs,” said one respondent.

“Equipment prices continue to rise yet rental rates do not keep up with the increases,” added another.

There was a sharp slowdown in unit growth, the survey found. Average fleet size in units still grew but at a slower rate, 1.1 percent year over year in the third quarter of 2024. The slowdown is consistent with softer forward capex plans. While equipment prices have remained relatively constant and better than expected, according to Baird analysts, it remains to be seen if those prices can be maintained in a softer demand environment.

"There are a lot of large projects that have been sidelined,” said a respondent. “Some pending elections, some pending interest rates, some pending funding, etc. If OEMs can throttle back new equipment production while usage demand grows in 2025, supply/demand should begin to rebalance. If not, pricing will suffer.”

Capex Hits the Breaks

Spending on fleet by rental companies is now at its lowest levels since the pandemic, with a decline of about 0.6 percent, the survey indicates. Respondents expect a slight decline in spend of about 3 percent on an equal-weighted basis, the survey shows. Looking to 2025, respondents expect about a 2 percent spending hike, with some factoring in lower rental rates.

“Demand is good, but supply is heavy, causing margins to suffer,” said one respondent.

“There is work, but it’s more competitive and from an equipment supply standpoint, everyone has gear,” said another. “Both the OEM dealers and buy-to-rent players have excess new, used, and rental equipment inventory. It is shifting from a too little supply problem to a too much supply problem.”

New access equipment availability and lead times are showing material improvement, the survey shows, with 65 percent of respondents reporting access equipment availability similar to pre-pandemic conditions, while 24 percent report that lead times are still modestly longer. As for earthmoving equipment availability, 86 percent of respondents report similar availability to pre-pandemic conditions.

Respondents are still expecting average rental revenue to be up 3.1 percent in 2024, while last quarter respondents predicted a 5.3-percent growth hike in 2025. Overall, the majority of respondents are still having a good 2024, with larger players experiencing a better year on average. Fifty-three percent of respondents rated 2024 as a good year. The markets remain competitive, with the majority of respondents describing the markets they operate in as either “very” or “extremely” competitive. And a high percentage of respondents describe the health of their companies as either “good” or “very good.”