April 4, 2011 - In general, demand for commercial construction and construction machinery depends heavily on the health of the USeconomy, including corporate profits and local government budgets.  The construction sector is expected to contract during the remainder of 2011-down 2.3% from 2010-due in large part to the deep cuts in the public sector's capital spending.

 

The following five years, however, should provide a period of robust recovery as the economy improves.  Most parties interviewed during the research for this report were optimistic this recovery is beginning.  Heightened consumer spending and business investment will fuel growth. Replacement of many industrial facilities, delayed for years, will occur, and other structures whose remodeling has been put off during a down economy will undergo renovation.  Replacing and renovating schools, in particular, is expected to energize the market, as government spending on infrastructure projects remains high.    A revival in demand from the transportation industry is also expected during that time frame.  ("Construction Output Forecast 2011-2015," marketresearch.com; "Commercial Building Construction," ibisworld.com, 3/11)

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Specifically with regard to the heavy construction equipment rental sector, many in the $22 billion industry agree that 2009 was one of the worst years in recent memory, brought on, as noted by Michael Roth of the Rental Equipment Register, by a "perfect storm of factors producing a catastrophic recession," which included a dramatic downturn in commercial construction.  In 2009, rental companies were forced to downsize their fleets, let go of staff, close branches, and cut costs in every way imaginable, and for the top 100 renters on the Rental Equipment register, 2009 volume still decreased 35.3% compared with 2008, the largest single year drop since 1986.  ("Heavy Construction Equipment Rental & Leasing," ibisworld.com, 2/11; "The Hardest Year," Rental Equipment Register, printthis.com, 5/10)

 

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Improvement was seen in 2010, when corporate profits, an indicator of corporate demand for equipment rental, jumped approximately 25%, compared to 2009.  Additionally, most equipment rental companies reported expectations of an even better year by the end of 2011, when the rental market for construction, earthmoving, and access equipment is forecast to grow 17%, to about $25 billion.  Equipment rental companies are expected to build on moderating market conditions, led by non-residential construction spending, the largest user of rental equipment. As contractors attain more project contracts, they still hesitate to purchase and finance new equipment, which can cost in the hundreds of thousands of dollars, so, for at least the short term, the expected new jobs will serve to reinforce rental's potential.

 

Additionally, the trend of consolidation in the very fragmented industry is expected to continue; merger and acquisition activity will be seen as companies come to believe economic conditions are improving. The longer term penetration of the rental business in the overall USconstruction industry should continue.  (hoovers.com; "A 17 Percent Gain is Good News," rent-talk.rermag.com, 2/11;  "US Construction Equipment Rental Companies Will Continue to Build on Moderating Market Conditions in 2011," Standard & Poor's, 2/11; "The  State of the Rental Industry," constructionbusinessowner.com; "Rental Business Booming in America," roadsbridges.com, 3/11

Based in Buffalo NY, Blackbird Asset Services is a boutique auction and valuation firm that caters to secured creditors and bankruptcy professionals. With a national practice, our auctioneers and appraisers work all over North America and conduct USPAP certified appraisal reports as well as on site and online auction sales.