The equipment rental industry stands poised to set an industry record for revenues in 2015 according to the latest industry forecast from the American Rental Association (ARA), despite reduced demand for equipment in oil patch drilling sites.
Rental companies historically are able to adapt to changing market conditions, shifting inventory and moving equipment to where demand is greater. Today is no exception. Lower oil prices may be reducing the opening of new drilling sites, but they are also leading consumers to spend more, and are fueling increased activity in the rental industry's construction and party/event market segments.
The new quarterly ARA forecast from its ARA Rental Market Monitor subscription service has been modified slightly from February. The numbers remain very positive, with total revenue expected to grow by 7.9% in 2015, reaching a record $38.5 billion in the U.S. The expected growth would include all three industry segments: construction/industrial, general tool, and party and event.
ARA’s current five-year forecast calls for steady growth of 7.2% in 2016, 8% in 2017, 7.9% in 2018, and 6.8% in 2019, to reach $51.3 billion.
“Those in the rental industry have learned how to thrive in different economies and customers continue to learn that renting equipment is a smart move as market conditions today can change rapidly,” says Christine Wehrman, ARA’s executive vice president and CEO.
“Even as several forces, including harsh weather, held back U.S. economic growth in gross domestic product (GDP) to 0.2% in the first quarter, total rental revenue was up 4.9% in the same period and is expected to exceed 9% in the second half of the year,” Wehrman says.
Construction/industrial rental revenue is now forecast to increase 8.2% in 2015, to $25.9 billion, with general tool projected to grow 7.9%, to $9.8 billion, this year, and party/event to show a 4.7% increase, to $2.7 billion.
“The equipment rental industry will achieve its new peak level as a the result of a prolonged gradual improvement in the economy as a whole, and construction, industrial, and consumer markets in particular,” says Scott Hazelton, managing director, IHS Economics and Country Risk, the global forecasting firm that compiles data for the ARA Rental Market Monitor.
“There also was some lift from energy markets, which are slowing, but the majority of the growth has come from solid fundamentals. Given a current level of activity based on solid ground, an economy that continues to improve will lead to rental revenues that are achievable and lasting,” Hazelton says.
“The significant price reductions in oil are over and they will likely drift upwards over the year. Major cuts in new well drilling already have occurred and production will begin to taper off soon. We made the adjustments to the rental outlook for energy prices in February and we have not made any further adjustments as events are playing out approximately as anticipated,” Hazelton says.
“While low oil prices have reduced growth prospects in the oil and gas area, that situation affects primarily production at this point. We still are seeing strong growth in downstream facilities, such as refineries and petrochemical processing plants. However, low oil prices have increased demand for other goods. For example, the U.S. is expected to demand 200,000 more light motor vehicles than previously expected, which creates rental opportunity within auto plants,” Hazelton says.
“Lower energy costs also translate into improved consumer spending power and corporate profits, so the party and event sector also gets a boost,” he says.
The construction/industrial rental penetration also was up 100 basis points in 2014, from 52.9% in 2013 to 53.9% for 2014, according to the ARA Rental Penetration Index. ARA released the 2014 ARA Rental Penetration Index in February at The Rental Show 2015 in New Orleans.
“Rental penetration continued to increase in conjunction with strong growth in rental revenues in 2014,” says John McClelland, ARA vice president for government affairs and chief economist.
ARA’s Rental Penetration Index measures the proportion of the total fleet of construction machines that are owned by equipment rental companies. The index is value-based and uses original equipment cost as the primary weighting factor to calculate the ratio of rental equipment value to total fleet value.
Sales into the rental channel by equipment manufacturers also continue to grow, meaning the penetration rate could climb higher this year. In addition, ARA is forecasting an increase of 8.3% in investment in equipment by rental companies this year.
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