The rental equipment industry experienced a solid 7.9 percent year-over-year increase in rental revenue during the third quarter of 2024, according to the Baird rental equipment industry survey. This growth, although slower compared to previous quarters, signals a relatively healthy market despite emerging challenges.
Slowing yet steady growth
The recorded figure for the third quarter growth of 7.9 percent is less than what was registered in the second quarter of 2024 when the economy expanded by 10.8 percent. Forecasts for the last quarter of the year are predicting a growth of 6.8%, thus this year will be hounded by cooling expectations. In the year 2023, the growth rate is predicted to come down to 8.6 percent which is lower than the projection of 10.2 percent made in other surveys.
Such a slowdown is warranted but not exactly a surprise. Even though the sector has been performing reasonably well, there is a tempered mood as such peripheral considerations as interest rate, material price, or competitive landscape are beginning to come to bear on demand.
A mixed bag of results
The survey participants have shared their perspectives that are different from each other. Fifty percent confirmed that the results for Q3 were exactly as they expected, while 28 percent were surprised by the outcomes, including 14 percent who characterized their performance as much higher than expected. Nevertheless, there was 21 percent of respondents whose results were not as high as they had anticipated.
Baird survey’s study indicates that the need is still good but the signs of slowing down are coming out. Although the sectors of nonresidential construction verticals with the exception of office buildings are still doing well, there are increasing apprehensions concerning the operating environment particularly for the fourth quarter and beyond.
Positive comments included optimism about the workload, that is, many rental companies are often expecting the demand to remain on stable levels in the forthcoming 2024. One respondent remarked, “The bulk of our client base is already booked for most of 2024,” which essentially indicates confidence in work supply.
Nevertheless, the listed responses weren’t all full of good news. Several respondents revealed their worries about project delays, especially in the commercial sector. The combination of higher interest rates, rising materials costs, and competitive pressure has an impact on the situation where some large-scale projects are being postponed or even canceled.
Utilization rates reflect market shifts
The overall fleet usage rate came down to 61.8 percent during the third quarter of 2024, a clear decline from the survey’s record high of 67.9 percent during the same quarter of 2024. Such a decline was noted over several equipment categories, including access equipment and earthmovers equipment.
Access equipment remains the main component of the survey’s revenue with a share of 35 percent and its utilization went down to 63.8 percent which was a drop from 67 percent a year ago. Earthmoving equipment, which constitutes 34 percent of the revenue, also saw a decline in utilization from 67 percent in 2022 to 61.8 percent in 2024. Small iron utilization saw the steepest decline, falling from 68.9 percent in 2022 to 57.8 percent in the third quarter of 2024.
This decrease in utilization can be attributed to several factors, including a slowdown in demand and an increase in equipment supply. According to one respondent, demand is very quickly falling as inventory levels are filled up.
Rental rate growth slows
In the third quarter of 2024, rental rates grew further, but at a slower rate. In keeping with the 2.3 percent increase in the second quarter, rates rose by 2.2 percent. These figures, however, represent a decline from the 3.7 to 4.8 percent gains observed during the preceding seven quarters.
With forecasts pointing to a 2.9 percent increase for the entire year of 2024, rate growth is expected to be modest going forward. More equipment availability than declining demand seems to be the main cause of the rental rate decline. Although the study raises worries about project delays and price pressures in specific sectors, backlogs are still quite significant.
Higher interest rates and capex decisions
Interest rate increases are having an increasingly noticeable effect, especially when it comes to decisions about capital expenditures, or capex. Only 35% of respondents in previous studies expected higher rates to have a substantial impact. That percentage has since increased, though, with almost 70% anticipating some sort of adverse effect on their capital expenditure plans.
The availability of loans, especially from regional banks, is anticipated to be impacted by higher interest rates, which may further limit rental enterprises’ capacity to make investments in new machinery. Higher financing rates would have a small influence on capital expenditure decisions, according to 54% of respondents, while 21% indicated they would have a considerable impact.
Outlook for 2024
Although currently faced with challenges, the 2024 perspective is still a possibility to be better or remain the same. Over half of the interviewees submitted a report showing that the demand for different building construction will remain stable and growing. In terms of revenue, 59% of respondents said 2024 was an “excellent year,” while just 22% of equal-weighted respondents felt the same way.
The features that will control and change the market will be interest rates, equipment supply, and project backlogs. While most rental companies are positive about the amount of work they have booked for next year, they are worrying more and more about the competitive landscape and project delays.
As the rental industry enters the final quarter of 2024, it is clear that while growth remains solid, the pace is slowing. Rental companies must stay vigilant in managing their fleets and adjusting to the shifting dynamics of supply, demand, and pricing. The fourth quarter and beyond will likely see continued moderation in growth, but the long-term outlook remains positive, particularly for those companies that can navigate the challenges ahead.
