Outlook for Equipment Rental Revenue on the Rise

industry forecastThe 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 released by the American Rental Association (ARA) now calls for equipment rental revenue to exceed $47.8 billion in 2021. This is nearly a 3.5 percent increase over 2020 and greater than last quarter’s forecast that called for a 3.1 percent increase this year.

Overall, the ARA forecast calls for a hefty 9.68 percent 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. The forecast shows that growth will be 3.9 percent in 2023, 2.4 percent in 2024 and 3.5 percent in 2025 to total $57.7 billion.

The expected strong demand for construction and industrial revenue, particularly in 2022 fuels the revenue increases. This is when the segment’s revenues will jump 11.9 percent to $38.9 billion. This will surpass the record $37.7 billion in revenue set in 2019, according to expectations.

The effect of the Infrastructure Investment and Jobs Act of 2021

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,” says John McClelland, ARA vice president for government affairs and chief economist.

“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,” McClelland says.

Timing is everything

Scott Hazelton, director, economics and country risk, IHS Markit, Andover, Mass., says the timing of the infrastructure spending remains unclear. This makes it difficult to assess the rental forecast implications over time. However, 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. This is because the forecast for nonresidential construction has improved. Also, 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. 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. This also translates into more demand for equipment rental.

Investment outlook

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 percent to $7.2 billion. Additionally, the expectations show another 40 percent in 2022 to reach nearly $10.1 billion. This will surpass 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 percent — in 2020. There is now an expectation that it will rebound by 48 percent in 2021. Additionally, it will rise 40 percent in 2022. Our analysis of industry metrics that show increases in physical utilization, fleet age and fleet turnover support this forecast,” McClelland says.

“These measures suggest that there has been defleeting and aging of the fleet during the pandemic. This is 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, there is an expectation that investment in general tool equipment will increase by 19.5 percent this year. This growth with allow it to reach $3.31 billion. It will then grow another 22.1 percent in 2022 to reach $4.04 billion.

About ARA

The American Rental Association, Moline, Ill., is an international trade association for owners of equipment and event rental businesses. It is also for the manufacturers and suppliers of construction/industrial, general tool and party/event rental equipment. ARA members include more than 11,000 rental businesses and more than 1,000 manufacturers and suppliers. They are also located in every U.S. state, every Canadian province and more than 50 countries worldwide. The ARA begin in 1955. It is the source for information, advocacy, education, networking and marketplace opportunities. The group serves the equipment and event rental industry throughout the world.

Got more questions about your project?

  • Drop files here or
    Accepted file types: jpeg, jpg, gif, png, pdf, Max. file size: 50 MB.
      Allowed formats: jpeg, jpg, gif, png, pdf
    • How would you like us to respond?

    • Note: Some questions will be published anonymously with their answers at the end of this story to share with other readers.