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Capitalizing on Construction Equipment Rental Fleets

It’s sometimes more cost-effective to rent new equipment rather than buy it. Equipment dealers can benefit from this growing trend.

Although the outlook for large infrastructure projects is uncertain, there is a clear bright spot in the construction industry’s future. Equipment rental businesses are seeing fast-growing success by offering contractors the latest machines without the big payments. Not only has the rate of equipment rentals grown in each of the past three years, but the number of rental dealers has increased, as well.

Key Takeaways
  • Equipment rental businesses are seeing fast-growing success by offering contractors the latest machines without the big payments.

  • Prices for well-maintained quality equipment with low usage rates are rising.

That’s because construction companies are finding it more cost-effective to rent rather than buy expensive equipment that will only be used for a limited period of time. In the U.S. today, about 40 percent of construction equipment is rented — and that’s expected to increase, according to a rental industry study by Andy Agoos for Neff Rental.

There are several factors that go into the rent vs. buy decision for contractors and construction companies. These include the length of the job, the difficulty of transporting a piece of equipment to jobsites, and the likelihood of winning additional projects where that particular piece of equipment will be used. For some companies, all of these factors combine to make renting more attractive than buying.

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Dealers may acquire their rental equipment in various ways — typically new from manufacturers or used from auction. When they decide it’s no longer cost-effective to keep renting out a particular piece of equipment, they can sell it to an end-user or put it up for auction again.

“In the U.S. today, about 40 percent of construction equipment is rented — and that’s expected to increase.”

Prices for well-maintained quality equipment with low usage rates are rising. In August 2013 (the most recent date for which figures are available), rental rates increased 0.8% from the prior month, on average, for the rental companies that participate in the Rouse Analytics Rental Metrics Benchmark Services. Rates were up 4.0% from August 2012.

In fact, the construction equipment rental business in the U.S. is expected to grow 12% in 2014 to approximately $37 billion in total revenues, according to Frank Manfredi, president of Manfredi & Associates, Inc., a market research and consulting firm that specializes in the industrial sector of the rental industry.

Manfredi estimates that about half of U.S. dealers offer rentals in addition to sales. As the market for equipment rentals continues to develop, nearly all dealers fall into one of these buckets: A retail store that rents, or a rental store that sells.

To learn more about rental fleet financing from GE Capital, click here.