Our markets are evolving and our new strategic plan, Sunbelt 3.0, will take us into ever more markets, both by geography and function. Construction will likely remain our biggest market in terms of the equipment required but non-construction continues to expand massively as we service new markets through the amplification of our Specialty business.
The US continues to be our largest market and we see good growth in our newest market, Canada. The UK, which is a more mature rental market, is a more subdued environment than North America but our actions to realign the business for the future with a simplification of the go-to-market message and leveraging cross-selling opportunities across the platform are already bearing fruit. We are excited by the future prospects for the UK business. The US rental market is seven times bigger than the UK and we continue to capitalise on the structural changes in that market, as customers continue to adapt to renting equipment rather than owning it. Our Canadian business is smaller than our UK business but has grown rapidly and we are excited by the opportunities we see there. We expect the Canadian market to develop in a manner similar to the US, as customers get more accustomed to renting a wider variety of equipment and more familiar with the Availability, Reliability and Ease we deliver. Our aim is to continue to grow the business wherever we are in the economic cycle and no matter what unprecedented circumstances we face.
All our markets have been affected by the COVID-19 pandemic and the unprecedented actions taken by governments and the private sector to contain the virus. This does not change the long-term attractiveness of our markets and our opportunity to rent an ever-broader range of equipment. Although volumes were impacted adversely, this was mitigated, in part, by our response efforts throughout our business units but particularly our Specialty businesses. We are designated as an essential service in the US, UK and Canada in times of need, supporting government and the private sector in response to emergencies, including hurricanes, tornadoes and, most recently, a pandemic. Our response to the pandemic includes providing vital equipment and services to first responders, hospitals, alternative care facilities, testing sites, food services, telecom and utility companies, while continuing to service ongoing construction sites and increased facility maintenance and cleaning.
The breadth of our markets
Our markets continue to broaden, in terms of geography, range of equipment rented and the applications for which our equipment is used. Our end markets are increasingly diverse and we are seeing the power of cross-selling between General Tool and Specialty. The "markets we service" shows the growing diversity of end markets that are using our equipment more and more. In many cases, this is the same equipment just used for a different purpose. A significant proportion of our fleet was developed originally for the construction industry but is now used in applications varying from film and TV production to putting up Christmas decorations. We are reaching these broadening markets as a result of our scale, advancement of our market cluster strategy and Specialty business evolution - all positioned to give great service to our customers through our corporate mantra, Availability, Reliability and Ease. For any one of these markets, there is also a wide range of equipment used. Equipment that previously would not have been rented is now part of the rental mix. This is particularly the case with the ongoing structural change most noticeable in the US and Canada.
Construction is a core part of our end markets but we continue to see plenty of growth opportunity in general equipment and specialty businesses in areas such as events and building maintenance. A big change in recent years has been the increase in rentals taking place in ordinary square footage under roof applications every day, and we expect this trend to continue once lockdown measures are eased. As well as our COVID work, we have also seen high demand for our emergency response services for which we are well known after working on so many natural disasters, including tornadoes and hurricanes.
We are also seeing changes in the length of time that customers hold onto equipment. Large projects are longer and rental is now core to these rather than being more ‘top up’ in nature, as it used to be. We are also seeing customers holding on to equipment longer to move to the next job or project.
Markets we service
- Highways and bridges
- Office buildings
- Data centres
- Schools and universities
- Shopping centres
- Winter storms
- Residential emergencies
- Alternative care facilities
- Points of distribution
- Mobile testing facilities
Facilities maintenance and municipalities
- Office complexes
- Apartment complexes
- Data centres
- Parks and recreation departments
- Schools and universities
- Shopping centres
- Pavement/kerb repairs
- Golf course maintenance
Entertainment and special events
- National events
- Sporting events
- Film/TV production
- Theme parks
- Farmers’ markets
- Local 5K runs
- Cycle races
Our core US markets have been adversely affected by the impact of COVID-19. While the impact was immediate and quite severe, the longer term prospects for rental and our products and services remain strong. It is difficult to predict with any certainty in the current environment but rental industry forecasts are expecting a return to growth during 2021, after a significant retrenchment in 2020. We expect to perform better than the market as we expand our Specialty businesses and continue to take market share.
Dodge Data & Analytics show a put in place construction decline for 2021 but this is expected to be followed by a consistent recovery in 2022 and 2023. Similarly, the rental market is expected to recover in 2021 and beyond. With forecasts like these, our business model becomes ever more attractive as our customers increasingly choose the flexibility of rental versus the long-term commitment and ongoing cost related to purchasing equipment.
We believe we are likely to see a change in focus of construction with the continued shift away from retail and lower demand for new hotels and office buildings but with increasing demand for data centres, distribution warehouses, infrastructure and office renovation. Lower construction activity will, in part, be mitigated by increased activity in non-construction markets like office and residential remodelling. COVID-19 has resulted in virtually a complete shut-down of the events market, which is dependent on large gatherings of people. While we expect this market to return, it will be a slow build-back from where we are now. Oil and gas is only a very small part of our business and continues to be a reducing part.
Market share in the US
We continue to grow our market share in the US and even though we are the second largest equipment rental company, there remains plenty of room to grow. Our major large competitors are United Rentals and Herc Rentals with 14% and 3% respectively. Home Depot, Ahern and H&E have shares of 2% or less. Most of the remainder of the market is made up of small local independent rental shops.
Much of our market share gain comes from these small independents when we set up new stores or acquire them. Ours is a capital-intensive industry where size matters. Scale brings cost benefits and sophistication in areas like IT and other services, and this leads ultimately to further consolidation. The proportion of the market enjoyed by the larger players continues to increase and we have clearly been a major beneficiary of this trend. Whilst there will always be a place for strong local players, the market share enjoyed by the larger players is likely to continue to grow as the big get bigger.
This market share analysis is based on the traditional definition of the rental market focused on construction. A significant market for us is facility maintenance, repair and operation characterised by square footage under roof. In the US there are 90bn square feet under roof and we believe this represents a potential rental market of $7-10bn, with minimal rental penetration at the moment. It is not a new market for us, but one with increasing opportunity as we demonstrate the benefits of rental through Availability, Reliability and Ease. One consequence of this is that we believe the size of the rental market is understated and hence our, and everyone else’s, market share is overstated. This only serves to increase the opportunities for growth.
We are confident that as the market grows, our share will also increase. We have a good track record of success having more than doubled our market share since 2010. We continue to set ambitious targets for market share increasing our long-term market share target to 20%. The speed with which we increase our market share is in part a function of how quickly we can get new locations up and running. However, as noted above, our market share growth also comes from continuing to broaden both our end markets and the range of equipment we have available to rent in each location.
The combination of our business model, the continued attractiveness of our markets and the long-term trend to rental, provides the perfect environment for us to achieve our goals. In addition, our market share gains accelerate as we make the most of our scale advantages. Being there for our customers and trusted to deliver, also brought us share during the pandemic.
As we increase our market share and grow our Specialty businesses, they become a greater proportion of the business mix across the cycle. The acquisitions we make are often to expand into a new specialty area or to develop an existing one and then we supplement them with greenfield openings.
The trend to rental
The trend of rental penetration in the US continues to be positive for the industry as our customers have become accustomed to the flexibility of an outsourced model. Between 2010 and 2021, increased rental penetration effectively grew our end market by c. 25%. We see this trend continuing, which will provide similar levels of market growth over the coming years. Rental still only makes up around 55% of the US market compared to around 75% in the UK. However, this is a broad average with penetration levels ranging from low single-digit percentages for, say, floor scrubbers to 90%+ for large aerial equipment. We like specialty products because they are at the low end of this range, which provides greater scope for growth. We see the potential market penetration for rental equipment to be well over 60% in the US. The drivers of this evolution include the significant cost inflation in recent years associated with the replacement of equipment, technical changes to equipment requirements and health, safety and environmental issues which make rental more economical and just easier. For example, environmental regulations have driven further rental penetration through the reduction in fleet size by those customers who previously may have chosen to own some if not all of their larger equipment needs. Customers and smaller competitors with older fleets are faced with heavier replacement spend causing them to either replace less and rent or reduce their fleet size. Furthermore, the difficulties of getting to grips with new technology and maintenance requirements have also caused more operators to decide to rent. Maintaining optimally-serviced and therefore safe equipment can be a big outlay for a smaller operator. Therefore we continue to invest in keeping our fleet in the best condition it can be to take advantage of the increased demand for rental. Uncertain market conditions also make it far more attractive to rent than buy. The diversity of our fleet helps us take advantage of this increasing trend to rental and we continue to expand the range of products we rent.
A fast growing market
Canada is a relatively new and growing market for us. The existing rental market is less than a tenth of the size of the US. But in the same way that the US has experienced structural growth as more and more types of equipment are rented for different applications, we expect similar trends in Canada in the longer term. Our share of the Canadian rental market is around 7%. There is plenty of scope to develop this in the same way as in the US and we are growing rapidly. Although the market has been affected in the near term as a result of COVID-19, the longer term prospects for the market remain strong. We have seen continued market growth in 2021 and IHS Markit predicts Canadian rental revenue to grow 12% and 8% in 2022 and 2023. We anticipate growing more rapidly as we take market share and broaden our offering.
From our humble beginnings in western Canada, we have grown to 12 locations in the Vancouver market. Key of course to delivering on our mantra of Availability, Reliability and Ease is convenience, proximity and diversity in our offering. We now have a significant presence in Ontario and have expanded in Edmonton, Calgary and Winnipeg. Beginning with a complement of General Tool businesses and adding Specialty into the mix to introduce cross selling, our runway for growth in Vancouver and in the rest of Canada remains long.
The acquisition of William F. White (‘WFW’) in 2019 expanded our Specialty business into the provision of production set and on-site equipment, services and studio facilities to the motion picture, digital media and television industries. While this business ground to a halt when COVID-19 first hit, it has recovered well and we expect this to continue as well as delivering cross selling opportunities in this space for the broader Sunbelt product offering. We are creating a strong platform from which to grow.
We have achieved our initial goal of a 5% market share in Canada and we are now looking towards the next milestone of 10% market share.
The UK market is improving and we are ever more optimistic of improved returns. Project Unify, under which all the UK businesses were brought together as Sunbelt Rentals, is already paying dividends as we outperform the market, leading, in particular, to gains in the ongoing construction and maintenance-related rental space. We remain in the early stages of forging our path to sustainable long-term results and returns, but are creating sustainable cultural change. The business is re-branded, re-focused and re-energised, with a joined up, cohesive approach to future growth opportunities.
We continue to be the largest equipment rental company in the UK. There are a greater number of major players in the UK market and, as the largest, we only have an 9% market share.
We believe we continue to be well-positioned in the market with our strong customer service, broad based fleet and strong balance sheet. Project Unify has already enhanced this market position through simplifying our go-to-market message and leveraging the cross-selling opportunities provided by our broad product offering and Specialty businesses. We are excited by the potential we expect to uncover through our new strategic plan, Sunbelt 3.0.