The State of the Rental Industry

Why 2011 might be a good year to consider renting construction equipment.

Much of the buzz at industry-related conferences toward the end of 2010 was positive, and several forecasting companies are seeing signs of better days to come for the economy overall and the construction industry in particular.This is good news for the equipment rental industry, which has the expertise and equipment available to help contractors and construction companies take immediate advantage of new opportunities.

In today’s challenging economy, the reasons to rent equipment are many. “What rental offers contractors and construction companies is a cost-effective alternative to owning equipment because equipment becomes a fixed cost without the accompanying overhead of ownership, such as maintenance, repair and storage. The rental company handles and pays for the warranty, maintenance and upkeep of the equipment,” says Christine Wehrman, CEO of the American Rental Association (ARA).

A Positive Rental Forecast

The expectation is that more people will realize the advantages of renting equipment, so the outlook for the equipment rental industry, in general, looks positive, according to IHS Global Insight, an economic forecasting firm used by the ARA to compile equipment rental industry-specific data and analyses.

As a result, ARA forecasts at least a 6 percent increase in construction and industrial equipment rental revenue in 2011, almost making up for a 6.1 percent decline in this segment’s 2010 rental revenue. 

Even though the revenue declined in 2010, the momentum during the second half of the year turned positive for many equipment rental companies. For example, for the first time in two years, some of the publicly-traded national equipment rental companies reported third-quarter year-over-year revenue increases and expect to see further growth in 2011.

ARA also expects to see a modest recovery in 2011 for general tool equipment rental, with revenues increasing 1.3 percent. Both the construction and industrial equipment and general tool segments of the rental industry are expected to benefit as many predict the recovery of the U.S. construction market to begin this year. IHS Global Insight stated that equipment rental revenue will show growth in the first quarter of 2011 with the growth rate increasing in each successive quarter.

According to IHS Global Insight analyses, these quarterly changes are driven by the expectation of increasing overall economic growth, as residential construction, nonresidential construction and economic profits are all expected to show their highest quarterly growth for the year in the fourth quarter of 2011.

Considerations for Contractors

Scott Hazelton, ARA’s senior partner with IHS Global Insight, says significant improvement is expected for construction equipment rental in 2011 for a variety of reasons.

“The rationale is a function of uncertain market conditions that will make rental of equipment desirable. With the cost of new equipment in the tens or even hundreds of thousands of dollars, a contractor needs to be very sure of future demand for new equipment,” Hazelton says.

“Very few have that confidence just now, so as they win projects, they opt to rent. This behavior will be most pronounced in the near-term. The severity of this recession forced many contractors to de-fleet and to age what fleet they kept. So, as they win new jobs, there may not be the equipment at hand to deploy, which will reinforce rental’s potential,” he says.

“Some say credit is loosening, but it also remains difficult for many to obtain financing for equipment purchases,” ARA CEO Wehrman says. “If you find yourself in this position, renting offers access to a wide variety of equipment as needed for the job at hand.”

Rental companies are focused on customer service and helping customers find the right equipment to most efficiently complete a job rather than trying to “make do” with a piece of equipment. Rental equipment is also well-maintained, and inventory usually includes later models with the latest safety features.

Rental companies have equipment experts who can become a trusted and valued partner to help you achieve your goals and efficiently complete projects with the right tools at the right time. The rental company’s trained professionals should help you assess and secure the right equipment for the job at hand, as well as provide training on how to properly use the equipment.

For many, price is a prime consideration when renting equipment, but the lowest rate does not always ensure the greatest value or least expensive option overall. Other factors to consider include the equipment’s availability, the proximity of the rental store to the jobsite and customer service.

Online Resource

Need help finding equipment rental stores? ARA offers 
www.rentalhq.com, an online rental locator. Users can enter their zip code and the type of equipment needed to get a list of local ARA-member rental companies that can help meet their needs.

Construction Business Owner, February 2011