ARA expects bigger gains for equipment rentals
The outlook for equipment rental revenue, comprised of the construction/industrial and general tool segments, has improved over the last quarter.
The updated second quarter forecast for equipment rental revenue, released by the American Rental Association (ARA), now calls for rental revenue to exceed $47.8 billion in 2021.
The latest forecast is nearly a 3.5% increase over 2020 and higher than last quarter’s forecast that called for a 3.1% increase this year.
Overall, the ARA forecast calls for a 9.68% increase in revenue in 2022 to reach nearly $52.5 billion, surpassing 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.
According to the ARA, the 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 the record $37.7 billion in revenue set in 2019.
Also, with the likely passage of the Infrastructure Investment and Jobs Act of 2021 (IIJA) by the U.S. Congress, the future forecast for equipment rental revenue in 2022 and beyond could be even more robust.
“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,” said John McClelland, ARA vice president for government affairs and chief economist.
McClelland said this roughly amounts 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 said.
Scott Hazelton, director, economics and country risk, IHS Markit, Andover, Mass., says the timing of the infrastructure spending remains unclear, making it difficult to assess the rental forecast implications over time.
“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.”
Hazelton also notes that about $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.
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 reach $4.04 billion.