Traditionally, mid-year is a time to begin thinking about and planning for what is to come next year. In effect, it's a time to take stock. Where have we been? Where are we going?
In general, 2007 is shaping up to be a solid year of growth for the rental industry, even if it doesn't quite match the success of 2006, possibly the greatest year in revenue growth in the industry's 50-year history. The equipment rental industry generated nearly $33 billion in annual revenues in 2006.
Along with the increased revenues, rental fleets have grown considerably. Industry sources say that four of the five top rental companies experienced fleet growth of over 17 percent in 2006. Time utilizations are lagging from 2006 levels, however, due to a drop in demand from a recent decline in housing starts and a number of other factors. As a result, capital expenditures are down overall from where they stood at this time in 2006.
Rental rates have steadily increased for over a year, although have been tracking down, suggesting a possible decline of 1 to 3 percent when all is said and done in 2007. In short, there is some evidence of a small adjustment in the rental business cycle.
So what's in store for next year and beyond? Despite the lack of unbridled optimism that we saw last year, there is plenty of evidence that the industry will continue to grow. According to the American Rental Association's 2006 State of the Equipment Rental Industry report, the rental market has grown substantially and consistently over the past 10 years. The compound annual growth rate has been 7.4 percent, significantly outpacing general economic activity and price level changes. Rental penetration for the construction equipment market has increased significantly, having doubled in the past decade to its current level of 27.5 percent.
To summarize, people are renting more than ever before, rental business operators are becoming savvier. Despite a temporary softening of the construction market and the apparent adjustment in the rental business cycle, rental is a concept that has yet to reach its pinnacle. The industry continues to be populated by people with an entrepreneurial spirit who are adept at surviving all business climates. 2007 most likely will not live up to 2006 standards, but will maintain a general trend of growth.
