Construction and Rental Look Strong for Next Few Years, Wells Fargo Says

Construction and Rental Look Strong for Next Few Years, Wells Fargo Says

Construction activity and equipment rental are expected to continue strongly according to a survey of the construction industry by Wells Fargo Equipment Finance. WFEF has surveyed construction industry executives for the past 40 years. For the past five years, WFEF has seen slow steady growth according to John Crum, senior vice president and national sales manager, and its 2015 survey revealed a sense of optimism that has held up well for the first three quarters of the year.

“Two themes we saw play out in 2015 were that equipment rentals would remain strong and equipment acquisitions would like rise, although at a pace that most industry participants would like to see more accelerated than is currently taking place,” wrote Crum in his most recent report.

Crum added that a highway funding bill – which has occurred -- would have a positive impact for manufacturers, distributors, rental companies and equipment end users. “Banks and independent finance companies that rely on this industry to deploy longer term capital would also benefit,” Crum wrote.

Crum noted that the positive growth numbers for both residential and non-residential construction are good indicators that the industry will remain healthy going into 2016, although with some notes of caution such as the impact of the slowdown in the energy sector. The overall rig count in the United States declined 59 percent from October 2014 through October 15. Equipment being re-deployed elsewhere has created downward pressure on rental rates and used equipment rates.

Crum wrote that rental has benefitted from unpredictable work backlogs and projected business activity levels, which in turn have contributed to unwillingness by contractors to commit to equipment purchases. Some end-users whose financial conditions remained weakened by the economic downturn are still relying heavily on rental. Broader OEM support for increased rental activity in their dealer networks has also boosted rental.

The likelihood of high single-digit growth in non-residential construction spending for the next few years bodes. “This should be a positive signal for OEM dealer rental distributors as well as general rental houses which have seen dramatic growth over the last four years even while construction spending increased only slightly,” Crum wrote.

Some dealers believe that a Federal Highway bill will inspire contractors to own rather than rent, while other feel there has been a more permanent shift to renting equipment rather than owning, Crum concludes.

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