While the real estate rental market may not be holding up as well, due to added supply of homes that are no longer owner-occupied, there is another rental market that offers appeal. These businesses cater to industrial companies and rent things like machinery. The long-term appeal here is less cost up front for the customer, as well as more flexibility with expenses. (For more, see To Rent Or Buy, The Financial Issues.)
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In the highly fragmented market of equipment rental, United Rentals (NYSE:URI) is one of the major players with nearly a 10% market share. The company rents thinks like forklifts and tractors, all the way down to light equipment like water pumps and hand tools. Nearly 60% of the company's revenue comes from the commercial construction side, a sector that has experienced some weakness over the past couple of years. Yet, as the construction market begins to slowly improve, contractors may be hesitant to make equipment purchases, and instead favor equipment rental. Recently, the company announced state contract wins for equipment rental in Massachusetts and Texas. As states continue to run lean budgets, equipment rental may become the de facto option. Also, as economic stimulus programs are temporary, the need to have permanent equipment around may not make sense.
The Other "Majors"
After United Rentals, RSC Holdings (NYSE:RRR) is the next major player with 6% of the market followed by Hertz Equipment Rental Company which is part of Hertz Global Holding (NYSE:HTZ), with a similar 6% market share. RSC and United are more pure play equipment rental businesses, versus Hertz which also has a large car rental operation that competes with the likes of Avis Budget Group (NYSE:CAR). The remaining 74% equipment rental market is dominated by other smaller players. Since 2005, the North American market share for the top four rental companies, which includes privately held Sunbelt, has grown from 24-26%.
The Bottom Line: A Strong Argument
Unlike real estate, a strong argument can be made for the long-term favorable outlook of equipment rental market, not least of which is reduced costs and flexibility, two things that many businesses will continue pursue in this new economic landscape.
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