Average Rental Revenue Declined 1.5 Percent Year over Year in Q4, Baird/RER Survey Respondents Say

Jan. 26, 2021
Average rental revenue declined 1.5 percent year over year in the fourth quarter of 2020, according to respondents to the Baird/RER equipment rental survey, a modest improvement compared to the third quarter when respondents declined 2 percent.

Average rental revenue declined 1.5 percent year over year in the fourth quarter of 2020, according to respondents to the Baird/RER equipment rental survey, a modest improvement compared to the third quarter when respondents declined 2 percent compared to Q319. Respondent commentary was more mixed than usual showing less visibility to the markets, depending on the COVID impact in different regions.

Respondents expect a 0.3-percent year-over-year improvement in the first quarter compared to Q120, and are optimistic enough to forecast an overall 4.9-percent increase in 2021 compared to 2020. The first quarter improvement is more than the Baird researchers would have expected, considering the first quarter of 2020 wasn’t impacted by COVID until the last couple of weeks of March.

Here are a few commentaries from rental people looking at the first quarter:

·      “Slow recovery … anticipate an upward trend in July and beyond,” said one.

·       “Markets are remaining relatively strong considering the negative impact of lockdowns and COVID,” said another.

·       “We continue to look at market opportunities to diversify our product offerings,” was a third comment.

·       “Jobsites seem to be slower to get started and seem to be progressing at a slower rate,” observed one industry participant.

·       “Commercial builders are much slower than residential right now,” said another.

Survey participants expect rental rates to do better after a challenging 2020. Average rental rates declined 1.8 percent year over year for the full year better than the fourth quarter when they plummeted 3.1 percent. Rate pressure originated from lower demand because of COVID 19 and oil-and-gas market weakness. Respondents expect a 1.4-percent rate hike in 2021 compared to an average 2 percent drop for the past three quarters.

Here are a few comments regarding rental rates:

·       “Competition is beginning to rear its ugly head by offering rental rates from the 1990s or before. This is thought to be because of several dynamics, not the least of which being ‘panic renting.’ This is unfortunate … for the entire industry as end users start expecting deeply discounted rates and minimum rental terms.”

·       “Overall, the market has far more supply than demand with respect to rental equipment. It will correct in due time.”

·       “With the COVID disruptions, some ‘niche’ players got literally destroyed, we adjusted our rental prices to be more aggressive on construction sites and by the end of 2020, we were able to be nearly at the same level of utilization as last year.”

Fleet utilization was 63.1 percent in the fourth quarter, a 50-basis-point decline year over year. Demand improved since the second quarter of 2020. The utilization rate of access equipment declined to 65.1 percent from 70.4 percent in the fourth quarter of 2019, while the utilization rate for earthmoving equipment increased to 67.6 percent compared to 66.4 percent in the fourth quarter of 2019.

Business was better in the second half of the quarter for a plurality (39 percent) of respondents on a revenue-weighted basis. The majority of respondents (52 percent) reported fourth quarter activity was better than initial expectations.

Sixteen percent of respondents reported that their rental fleet is younger than it was two or three years ago. Forty-five percent have a fleet that is similar in age to two or three years ago, while 39 percent said their fleets were older. When the survey asked the same question a year ago and 21 months ago, those with a younger fleet went from 51 percent to 29 percent to 16 percent. Those with older fleets went from 25p percent to 48 percent to 39 percent.

For 32 percent of respondents, the current COVID-19 downturn has been more severe than previous downturns. Ten percent said it was less severe and 52 percent said it was similar to prior downturns.