In the second half of 2014 surveyed construction executives indicated that the construction industry has much to be optimistic about. The general optimism and other positive indicators lead us to expect another solid year for the U.S. construction equipment market in 2015 with a continuation of the trend toward equipment rental.
Housing Builds Slowly: Residential construction continues to make modest improvements. In spite of seasonal variations and some month-to-month volatility, we continue to see good year-over-year comparisons. And the forecast for housing — more multi-family than residential — demonstrates some optimism that a growing economy will need to accommodate a continued expansion in residential living space.
More Equipment Rental and Higher Rental Rates: The resurgence of the equipment rental industry over the last few years continues to be one of the most memorable hallmarks of this construction cycle. In what contractors have deemed to be a relatively uncertain construction environment in the years since the recession, they have become more frequent renters of heavy equipment than in prior years. We see a marked increase in equipment rental rates in 2014 compared to 2013. We’ve found some regional variation in the trend but believe the tendency towards higher rental rates is firm.
Contractors Hesitant About Rental Conversions: At least in the near term, we believe distributors may not be able to count on contractors buying the equipment they have been renting. Industry executives acknowledge the ongoing increase in construction activity and we see signs of overall economic improvement, but contractors appear uncommitted about making long-term investments in heavy yellow iron. About six in 10 contractors (61.3%) said they planned to purchase less than 25% of the equipment they are currently renting. About one in five contractors (20.4%) said they are uncertain what percentage of equipment they will change over from a rental to an owned asset. We attribute this to a general wariness about the sustainability of economic growth over a sufficiently long period of time to support an investment in heavy equipment.
New Equipment Emission Standards: As more Tier IV equipment makes its way into the marketplace we also wanted to better understand what executives are experiencing with respect to performance and price. More than three-fourths (76.9%) of construction executives said that the new Tier IV equipment is performing as well as or better than previous generations of equipment. This is welcome news because contractors also agreed that the price point for this new equipment is much higher than what had been anticipated. Our conversations with contractors and dealers show a 10% to 12% price increase compared to equipment of previous generations.