Managing Uncertainty: Retail Rental Market Issues
The equipment rental market has been experiencing volatility and unpredictability over the past few years. However, the last few months of 2022 and the first months of 2023 brought about some much-needed stability in the heavy equipment rental market. The American Rental Association (ARA) forecasted 11% growth for the rental market in 2023, making it a year of steady growth for the industry. But what are the trends so far this spring in the retail rental market for heavy equipment? Are equipment managers relying on renting equipment more than they have in the previous five years? If they are or are not, why?
Key Infrastructure Projects Lead to Increased Demand for Equipment Rental
The ARA predicts that demand will continue to be high enough to drive continued growth in 2023, though it will be at a much slower rate than in 2022. According to the ARA, supply, labor, and economic uncertainty will continue to be major challenges in 2023. While the rental market will experience growth, it will be slow but steady. This trend is in line with global trends, where the equipment rental market is expected to grow at a CAGR of 4.7% from 2021 to 2028.
The backlog for construction projects is at its highest level since the second quarter of 2019, leading contractors to have high optimism about the next six months, according to the Associated Builders and Contractors Construction Confidence Index. The Infrastructure Investment and Jobs Act is expected to generate robust demand for the construction industry in the foreseeable future. Civil construction starts are expected to reach $281 billion in 2023, according to Dodge Construction Network. Some states already saw surges in highway and bridge construction last year, notably Texas, South Carolina, and Florida.
As more projects pick up steam, spending may impact some areas more than others. For example, Tres Birds, an architect based in Denver, plans to build the tallest mass timber building starting in July 2023. In addition, another infrastructure project driving demand is a construction project in New Jersey that involves building a 2.4-mile bridge over the Hackensack River. The new bridge, which will replace an old swing bridge, is expected to be completed in late 2026 and will improve rail service in the northeast corridor. This project will increase the demand for rental road construction machinery in the Northeast.
Residential Construction Propels Demand for Rental Construction Equipment – if Labor Shortages Can be Resolved
Last year at this time, the US government released its Housing Supply Action Plan, a plan to help reduce the cost of housing and make more affordable, quality homes across the country. The plan aims to help renters who pay high rent costs by building new homes for families with low or medium incomes. In 2022, around 1.4 million houses were finished in the US, which is 3.8% more than the previous year. But in December 2022, building permits were recorded at 1.3 million, 1.6% less than in November 2022. Residential slowdowns have occurred throughout the spring of 2023. With some tightening of immigration laws around the country, this could lead to an increased shortage of available, short-term workers needed to finish out those residential projects.
Rising Costs of New Equipment (Plus Continued Backlog) Lead to Favorability for Rental Market
With the global slowdown in the availability of new heavy equipment over the last two years due to the pandemic, chip shortage, and supply chain issues, prices for new equipment have risen. In fact, many manufacturers have announced across-the-board price adjustments for their new equipment, such as Hitachi announcing an 8% price increase for all products of construction and mining machinery directly citing “the impact of rising energy costs such as electricity and gas, continuous raw material price hikes due to disruptions in the global supply chain, and increasing logistics costs.”  While this may cause headaches for equipment managers looking to source high-quality machines, it bodes well for the equipment rental market which stands ready to fulfill that backlog of demand.
Why else might equipment managers rely more on renting this year?
There are several reasons why equipment managers may rely more on renting equipment in 2023:
- Increased demand: As demand for heavy equipment increases in the construction industry, contractors may not have enough equipment to complete their projects. Renting equipment provides a flexible solution for contractors who need equipment urgently for short-term projects.
- Cost-effective: Renting equipment can be cost-effective for contractors, especially for short-term projects. Renting equipment eliminates the need for maintenance costs and the initial investment in purchasing equipment.
- Up-to-date equipment: Renting equipment provides access to the latest equipment available in the market. This can be particularly advantageous for contractors who need specialized equipment that may be too expensive to purchase.
As demand for heavy equipment increases in the construction industry, equipment managers will be relying on renting equipment more than they have in the previous five years. Renting heavy equipment provides a flexible, immediate solution for contractors who need equipment to finish out projects. This trend is in line with a global trend where the equipment rental market is expected to grow due to an increase in demand for rental equipment from the construction and manufacturing industries.
In conclusion, the equipment rental market is experiencing slow but steady growth in 2023. The increased demand for heavy equipment in the construction industry may lead to equipment managers relying more on renting equipment. As the equipment rental market continues to unfold, smart equipment managers are looking to stay up-to-date with the latest trends and adapt their strategies accordingly.
At EquipmentWatch, we analyze equipment values on a regular basis with our monthly Market Reports. More in-depth reports such as The State of the Construction Equipment Economy aim to arm you with the insights you need to make quality, informed decisions about how to manage your heavy equipment. EquipmentWatch can help you with the data you need now to set accurate rates, value your fleet, make disposition decisions, and understand when to rent equipment. We are also ready to be your principal data provider for any AI-focused projects you take on in the future. For more information on the data solutions offered by EquipmentWatch call us at (888) 307-1713.