The Construction/Industrial rental penetration is up 100 basis points in 2014 from 52.9% in 2013 to 53.9% for the most recent reporting year, according to the American Rental Association (ARA) Rental Penetration Index. ARA released the 2014 ARA Rental Penetration Index at The Rental Show in New Orleans this week.
“Rental penetration continues to increase in conjunction with strong growth in rental revenues in 2014,” says John McClelland, ARA vice president for government affairs and chief economist.
ARA’s Rental Penetration Index measures the proportion of the total fleet of construction machines that are owned by equipment rental companies. The index is value-based and uses original equipment cost as the primary weighting factor to calculate the ratio of rental equipment value to total fleet value. ARA and their research partner IHS Economics developed the ARA Rental Penetration Index to provide another measure of rental industry performance. The Index uses information from the U.S Department of Commerce Current Industry Reports along with an aggregate estimate of the Financial Utilization metric provided by Rouse Analytics. “Using this information and the ARA/IHS estimates of rental revenue for the construction-industrial segment of the U.S. equipment rental industry allows IHS to consistently estimate rental penetration over time,” adds McClelland.
The 2014 ARA Rental Penetration Index marks the fifth straight year of growth since the dramatic dip in the index between 2008 and 2009. That dip was attributed to the nimble action equipment rental companies took when the financial crisis significantly reduced construction activities that drive equipment demand. Since 2009 rental penetration has continued to increase largely due to the growing demand for equipment in the construction-industrial segment coupled with tight credit conditions and the increasing costs of buying new Tier IV equipment that have made it difficult for contractors to rebuild their fleets after the financial crisis. “One of the biggest questions going forward is if the secular shift away from equipment ownership by end users toward rental continues,” says McClelland. “If 2014 is any gauge, there is still room for rental penetration to continue to increase and as the economy continues to grow this means more demand for rental equipment; a double-barreled boost to the equipment rental industry,” adds McClelland.