Respondents to the Baird/RER equipment rental survey for the fourth quarter of 2023 reported revenue about 6 percent higher than the fourth quarter of 2022. However, only 18 percent of respondents had better-than-expected results, 41 percent seeing results in line with expectations and 40 percent reporting missing internal budgets. The net negative (-22) is a post-pandemic first.
Fleet utilization was at 62 percent in the fourth quarter, up slightly from 61.8 percent in the third quarter, down from 65.9 percent in the fourth quarter of 2022. The utilization rate for access equipment (27 percent of survey revenue) was flat year over year, but the utilization rate for earthmoving fleet (44 percent of survey revenue) decreased to 63.4 percent from 67.5 percent in the third quarter of 2022.
The average fleet size in units increased about 6 percent year over year in the fourth quarter of 2023. The fleet growth slowdown experienced in 2022 was a function of supply chains impacting OEM deliveries (particularly for smaller buyers). Improved supply chains are resulting in higher shipments and a reacceleration of fleet growth.
The supply of equipment to the market continued to increase even as growth peaked – this impacts utilization and rental rates.
Infrastructure and municipal end markets have the most positive outlooks for 2024, driven by sizable government stimulus funding. Residential is seeing a sizable rebound in expectations based on hope for lower interest rates. Nonresidential construction is not seen as favorably for 2024.
Respondents are expecting a 3.2-percent revenue increase in the first quarter of 2024, with average rental revenue expected to jump 6.5 percent in 2024, despite some concerns.
Demand is moderating
In general, the Baird researchers say, demand is gradually moderating, and respondents’ qualitative commentary is more downbeat than in prior quarters with many expecting tougher business conditions into 2024.
“Nonresidential construction under pressure with continued slowing in office and distribution structures,” said one comment. “Industrial and institutional spending flat but steady. Residential and mixed-use continuing to cool off.”
“Single family residential is extremely slow and larger projects are on hold until interest rates improve,” said another.
“Cash flow is slowing. Companies are slower paying. New work is not as strong as last year,” said a third. “Existing work is mostly wrapping up projects from last year.”
On a more positive note, one respondent said, “It is looking like we are set for another good year, even though it is an election year.
“Rental continues to grow as contractors wish to avoid new debt and fixed payments,” said another.
Average rental rates rose 1.6 percent year over year in the fourth quarter, down from a 2.2-percent boost in last year’s fourth quarter and a peak of 4.8 percent in 3Q22.
“Slowing rate growth and construction starts, bids slowing down but overall, the market continues to have solid demand,” said one respondent.
“Equipment rental market is dramatically oversupplied in the Pacific Northwest,” said another respondent. “Starting to see some irrational pricing as rental yards fill up during winter months. Most rental yards have a lot of telehandlers underutilized after several years of an industry shortage.”
“Demand is still very good here in the Southeast,” said a third. “The tough part I see is supply is greatly rising so a much more competitive market.”