ARA forecasts rising rental revenues

The outlook for equipment rental revenue in construction/industrial and general tool segments, remains positive for 2021 and beyond, according to the latest forecast by the American Rental Association (ARA) at The ARA Show 2021 in Las Vegas. The third quarter forecast calls for equipment rental revenue to exceed $47.6 billion in 2021, a 3% increase over 2020. In regard to the mobile elevating work platform rental industry, ARA said 2021 will see U.S. MEWP fleets grow by 9.7%.

The American Rental Association (ARA) is forecasting U.S. rental revenues to hit $58.6 billion by 2025.

While that number is slightly less than the second quarter forecast, 2022 revenue now is expected to grow at a 9.9% clip to reach $52.4 billion, which would be a record for the equipment rental industry, topping the $50.9 billion recorded in 2019, ARA said.

The forecast also calls for equipment revenue increases of 5.5% in 2023, 2.5% in 2024 and 3.3% in 2025 to reach $58.6 billion.

Construction equipment rental leads the way

Construction equipment rental revenue leads the way with a 12.3% increase expected in 2022 to reach $38.7 billion while the general tool segment is forecast to grow 3.7% in 2022 to $13.66 billion.

ARA said the forecast does not include the possible positive impact should Congress pass the Infrastructure Investment and Jobs Act of 2021 (IIJA).

Scott Hazelton, director, economics and country risk, IHS Markit, said that as long as the timing of the infrastructure spending remains unclear, it makes it difficult to assess the rental forecast implications over time. But the company, which provides data and analysis for the ARA Rentalytics forecasting service, expects infrastructure spending to have a positive impact on future rental revenue forecast updates.

John McClelland, Ph.D., ARA vice president for government affairs and chief economist, agreed. “While there is uncertainty in Washington, D.C., about when the bipartisan infrastructure bill will pass, many Washington insiders believe it is only a matter of time,” McClelland said. “However, most of the benefits of increased infrastructure spending will not occur in 2022 because it takes time for projects to be approved and funding obligated. Once we have a clear indication of final passage, the team at IHS plans to incorporate that spending into the ARA Rentalytics forecast.”

IHS Markit said it is also monitoring the market to see to what degree inflation, which has not been an issue for well over a decade, gets reflected in rental rate increases.

For now, Hazelton said the outlook this quarter remains positive because the forecast for nonresidential construction has been steady 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. “While this only moves the nonresidential forecast from roughly flat to modest growth, it is enough to move rental equipment demand up.”

A comeback in CapEx

Equipment rental companies significantly cut capital investment in equipment in 2020 during the COVID-19 pandemic, as those in the construction and general tool segments spent 44.4% less that year, dropping investment in equipment to $7.64 billion.

The forecast shows that investment in 2021 should grow by 36.2% to $10.4 billion, followed by another 36% increase in 2022 to total $14.2 billion, along with a 10.9% jump in 2023, a 2.3% increase in 2024 and a 3.8% rise in 2025 to total more than $16.6 billion.

Canada follows trend

In Canada, equipment rental revenue is following a similar trend. According to the ARA forecast, construction and general tool rental revenue combined is expected to grow 18.9% in 2021 to reach $4.24 billion, topping the previous record total of $4.04 billion in 2018.

Equipment rental revenue in Canada is expected to grow another 7.9% in 2022, 4.5% in 2023, 2% in 2024 and 1.9% in 2025 to reach $4.97 billion.