The outlook for equipment rental revenue, composed of the construction/industrial and general tool segments, has improved over the last quarter, according to the American Rental Association's (ARA) second-quarter forecast.
The updated forecast now calls for equipment rental revenue to exceed $47.8 billion in 2021, a nearly 3.5% increase over 2020 and more than the 3.1% increase predicted in last quarter’s forecast.
Overall, the ARA forecast calls for a hefty 9.68% increase in revenue in 2022 for a total of nearly $52.5 billion. That surpasses the equipment rental industry’s previous peak revenue of nearly $51 billion in 2019.
Growth is expected to be 3.9% in 2023, 2.4% in 2024, and 3.5% in 2025 to total $57.7 billion.
The projected revenue increases are fueled by expected strong demand for construction and industrial revenue, particularly in 2022, when the segment’s revenues are expected to jump 11.9% to $38.9 billion, surpassing 2019's record $37.7 billion.
Also, with the U.S. Congress' likely passing of the Infrastructure Investment and Jobs Act of 2021 (IIJA), the future forecast for equipment rental revenue in 2022 and beyond could be even better.
“Once final passage occurs, we will have more specific analysis built into future forecasts, but at first glance it looks like the IIJA could increase rental revenues by about $8 billion over the eight-year spending program the IIJA authorizes,” says John McClelland, ARA chief economist and vice president for government affairs.
“That would roughly amount to an increase in rental revenues for construction and industrial equipment of 7.8% over the current forecast. While we need details on how and when the money will be spent to provide a more complete forecast on the IIJA’s impact on the equipment and event rental industry, early analysis is quite positive,” McClelland says.
Scott Hazelton, director, economics and country risk, IHS Markit, Andover, Massachusetts, says the timing of the infrastructure spending remains unclear, making it difficult to assess the rental forecast implications over time, but that the company, which provides data and analysis for the ARA Rentalytics forecasting service, expects to start incorporating the details into the next quarterly rental revenue forecast update.
For now, Hazelton says the outlook this quarter is more positive than the first quarter because the forecast for nonresidential construction has improved and the American Institute of Architects billings index has moved into positive territory.
“When that index indicates expansion for three consecutive months, there is a high likelihood that nonresidential construction will pick up 12 to 18 months later. While this only moves the nonresidential forecast from roughly flat to modest growth, it is enough to move rental equipment demand up,” Hazelton says.
In addition, he says some of the $350 billion in undesignated funds to state and municipal governments in the American Rescue Plan is expected to be used for construction projects, which also translates into more demand for equipment rental.
Perhaps the most interesting figures included in the new forecast concern the outlook for investment. According to ARA Rentalytics, those in the construction and industrial segment are expected to increase investment this year by 48.1% to $7.2 billion and another 40% in 2022 to reach nearly $10.1 billion, surpassing the peak industry investment in equipment of $9.95 billion in 2019.
“I’m especially interested in our investment forecast. Investment in new equipment dropped precipitously — 51% — in 2020 and is now expected to rebound by 48% in 2021 and 40% in 2022. This forecast is supported by our analysis of industry metrics that show increases in physical utilization, fleet age, and fleet turnover,” McClelland says.
“These measures suggest that there has been defleeting and aging of the fleet during the pandemic as a reaction to the resulting economic downturn. With the economy now in recovery, demand for rental equipment is increasing. With physical utilization already high, rental companies much make significant investments in new fleet to meet that demand,” he says.
In addition, investment in general tool equipment is expected to increase by 19.5% this year to reach $3.31 billion and then grow another 22.1% in 2022 to teach $4.04 billion.
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