What’s the biggest threat to the US rental market?

Market indicators have been calling for growth in the US rental market in 2024, and so far, results have exceeded expectations. 

The American Rental Association (ARA), for example, updated its forecast released in February, with new predictions suggesting the US could reach $79.2 billion in rental revenue this year, a 2.8% jump from previous estimations which predicted a total of $77.3 billion.

Mike Disser with RMC Consults LLC

“The US rental market is poised for steady growth this year,” says Mike Disser with RMC Consults LLC, noting, “Industry consolidation continues at a steady pace, albeit with more specialty and selective acquisitions taking precedence.

“Assuming a calm election period later this year, and a Fed that begins to reduce interest rates, this growth cycle could last for the next several years, through 2028. Infrastructure and mega project spending, mostly the result of federal legislation, will be a key driver of equipment demand. This includes the $1-trillion infrastructure legislation passed in 2021, with the bulk of the projects slated over the next four years.”

This is not to suggest there are no challenges to growth in the US, however. Rental companies must stay disciplined with rental rates, for example.

“One of the biggest obstacles that rental companies’ face has to do with achieving acceptable returns on their fleet,” Disser says. “With rapidly rising equipment, operational and employee costs, rental companies will be forced to raise rental rates to their customers and must be able to explain it to them in an acceptable manner, without losing them.”

He continues, “Inflation is the biggest concern. Costs are rising at a pace not seen previously, which are difficult to absorb and/or pass along to customers.”

Fortunately, inflation appears to be cooling. Reuters, for example, reported US monthly inflation was unchanged in May, drawing the Federal Reserve closer to start cutting interest rates later this year. The latest report from the Commerce Department also showed consumer spending rose marginally in May, with underlying prices advancing at the slowest pace in six months, raising hopes for a “soft landing” for the economy in which inflation cools without triggering a recession and a sharp rise in unemployment.

Construction saves the day

Despite the challenges of inflation and rising costs, the US rental market is getting a shot in the arm from rising infrastructure investment, increasing demand for housing, the boom in data center construction and

High inflation and sharply rising interest rates could threaten US equipment rental. (Photo: Adobe Stock)

other drivers, including the CHIPS Act to bring semiconductor manufacturing back to the United States.

“Construction activity is one reason the Federal Reserve rate hikes have not brought the economy to its knees like the economic models from other business cycles had forecasted,” Christopher Rupkey, chief economist at FWDBONDS in New York, told Reuters.

“There’s money for new industrial building projects with the only risk being there is a severe nationwide shortage of construction workers.”

Disser, for his part, says rising costs remain a wet blanket on construction growth.

“Both residential and non-residential construction forecasts have become weaker as interest rates rose and costs increased,” he states, adding, “Rental companies who adopt disciplined pricing strategies will be in the best position to address any economic challenges they face. It’s a battle each and every day to win customers – that never changes.”