Beware of rising rental rates
By Murray PollokMay 23, 2022
Supply chain issues and inflation are taking a bite out of many industries and certainly challenging Americans’ budgets, but one market that’s experiencing decisive growth in the face of these challenges is rental. The byproduct, however, is higher rental rates for contractors.
The American Rental Association has again upgraded its growth forecast for the U.S. rental market and is now expecting an 11.1% increase this year, with growth in 2023 still at the very healthy level of 6%.
The new forecasts are significantly higher than those issued by ARA in October last year, when the forecast was 9.9% growth in 2022 and 5.5% in 2023.
ARA attributed the increase to inflationary pressures and rising rental prices, alongside stable underlying demand.
The forecasts mean that U.S. equipment rental is projected to reach almost $56 billion in 2022. That compares to the pre-pandemic peak in 2019 of $51 billion.
Construction equipment rental is leading the way, with 13% growth this year to $41.7 billion following a 10.2% increase in 2021. General tool in 2022 is expected to grow 7% to reach $14.1 billion.
The forecast for Canada is similarly positive, with 9.6% growth in 2022 to $4.5 billion followed by 6.4% in 2023.
“One thing we know is that rental revenues grow when the fleet expands or when rates increase,” said John McClelland, Ph.D., ARA vice president for government affairs and chief economist.
“In reality, both things are happening today. However, supply chain issues are inhibiting fleet growth while inflation is pushing rates higher. In the past we saw a lot of revenue growth that we attributed to fleet growth. Now we are seeing revenue growth that is being driven by higher rates.”
Scott Hazelton, director, S&P Global Market Intelligence (formerly IHS Markit), said inflation and rental rates took off more than expected in the second half of 2021.
“The strong, double-digit growth outlook for 2022 is a function of stable underlying demand compounded by inflationary pressures that will allow, indeed require, rate increases,” said Hazelton.
“The underlying construction market will be relatively soft with both residential and non-residential structural spending under pressure, although we will begin to see the nascent impact of the Infrastructure Investment and Jobs Act.
“However, we don’t expect any retrenchment in construction, while the manufacturing, and especially energy, sectors will offer improvement.”