Rental Revenue to Increase 3.5% in 2021: ARA
The American Rental Association is forecasting equipment rental revenue of more than $47.8 billion this year, up 3.5 percent over 2020 revenue. The projection has increased since its last forecast in the first quarter, which indicated growth of 3.1 percent for the year.
The number represents revenue from the construction/industrial and general tool segments, according to ARA.
For 2022, ARA projects nearly a year-over-year increase of nearly 10 percent in 2022, which it says surpasses “equipment rental industry’s previous peak revenue of nearly $51 billion in 2019.”
The association cites expected strong demand for construction and industrial revenue, particularly in 2022, when the segment’s revenues are expected to jump 11.9 percent to $38.9 billion, surpassing the record $37.7 billion in revenue set in 2019. It said its projections could increase upon passage of the Infrastructure Investment and Jobs Act of 2021 (IIJA).
“Once final passage occurs, we will have more specific analysis built into future forecasts,” said John McClelland, ARA VP for government affairs and chief economist, in a prepared statement. “[A]t first glance it looks like the IIJA could increase rental revenues by about $8 billion over the eight-year spending program the IIJA authorizes. That would roughly amount to an increase in rental revenues for construction and industrial equipment of 7.8 percent 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.”
Scott Hazelton, director, economics and country risk, IHS Markit 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,” Hazelton said in a statement. “While this only moves the nonresidential forecast from roughly flat to modest growth, it is enough to move rental equipment demand up.”
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.
According to ARA Rentalytics, those in the construction and industrial segment are expected to increase investment this year by 48.1 percent to $7.2 billion and another 40 percent 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,” stated McClelland. “Investment in new equipment dropped precipitously—51 percent—in 2020 and is now expected to rebound by 48 percent in 2021 and 40 percent in 2022. This forecast is supported by our analysis of industry metrics that show increases in physical utilization, fleet age and fleet turnover.
“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.
Source: ARA