If you did an on-line search of “economic outlook for 2020”, you would see many different opinions, but a consistent theme.
The outlook is generally positive – not great, but not bad either. Flat-to-up—but not down. If you take it a step further and searched for “outlook for construction industry,” you would see the same overall trend. The rental industry, however, has a much brighter outlook. Let’s take a look at the reasons why.
Sustained Economic Growth
With nearly one hundred consecutive months of economic growth, the overall economic outlook in North America is positive, and it has been so for a while now. The United States has not seen this kind of sustained, long-term growth in education, finance, infrastructure, investments and construction in a long time.
Will this growth continue? Experts say yes – but we can’t run this fast forever. We may be slowing to a nice jog, but we’re still moving forward. The same holds true for the construction industry. With low interest rates and rising salaries and investments, people are buying and building with confidence across most sectors. However, there is doubt as to how long this will last. Trade sanctions, tariffs, a looming election year and pressure for the federal reserve to raise interest rates could slow this jog to a standstill at any moment. But for the time being, we’re still moving forward.
Equipment rental, however, absolutely thrives in this environment of uncertainty. Contractors are busy—for now. Construction companies have work—for now, but here is doubt that they will have this advantage in the future. So, rather than make investments in large capital goods, they can hedge their bets by renting the equipment they need for now—with no strings attached. That way, if they need to, they can return it to the rental yard. No payments. No commitments—freeing up capital for other operating expenses, or to help weather a possible downturn.
What the Experts are Saying
The American Rental Association (ARA) recently published their new five-year forecast that has been updated through August and it calls for both equipment and event rental revenues in North America to surpass $71 billion by 2023. The rental industry has been growing at a 5 percent clip for years now, and looking forward, it is projected to continue to grow at about 2-3 percent a year. Slightly slower, but still solid growth.
According to a recent ARA survey of the professional construction contractors who rented equipment in the past year, a majority of respondents expect to increase reliance on rental in the year ahead.
The message is clear; equipment rental is a great choice for those business owners that need short term equipment solutions for the foreseeable future.
The Rental Customer Needs Study conducted by RSG—an independent research firm for ARA—found that 93 percent of professional contractors surveyed rented equipment in the last year. Of those who rented, 92 percent planned to rent as much as last year, and 52 percent expected to increase renting over the next year.
According to this study, lifts, scaffolding, backhoes, dump trucks, and mini excavators are the most popular rental items among contractors. The listed reasons included: rental making more financial sense than buying (45 percent); equipment was needed for immediate use only (43 percent); and they needed to use equipment infrequently or for a short time (43 percent).
Contractors who expect to rent more next year will do so because they plan to use current rentals more frequently, or plan to take on more quick-turnaround projects.
It’s important for business owners to have an understanding of the market mix. Most people think of rental as mini excavators, skid steers and other small equipment, but the sales numbers in the rental industry are showing growth in demand for larger machines. You might look at that and say that it could be due to aging rental fleets needing to be replaced, but that's certainly not the case. They need the equipment. They need more and more excavators and dozers and other large earthmoving equipment in order to respond to the changing needs of the market.
That means contractors are clearing land, they're starting big projects and the smaller equipment is used to finish up those projects once they're done, those smaller machines are used for landscaping, pools and things like that. In the future, I see both manufacturers and rental companies getting smarter about forecasting those needs based on market conditions.