Our markets are always evolving and our strategic plan, Sunbelt 3.0, now into its final year, has taken us into more markets, both by geography and function. Construction will likely always be our largest market in terms of the equipment required, but we continue to see expansion of our non-construction business especially through the rapid growth of our Specialty businesses
Markets we service
- Highways and bridges
- Office buildings
- Data centres
- Schools and universities
- Shopping centres
- Manufacturing plants
- Green energy
- Winter storms
- Residential emergencies
- Health 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 and television production
- Theme parks
- Farmers’ markets
- Local 5K runs
- Cycle races
The US continues to be our largest market with strong performance and we see good growth in our newest market, Canada. In the UK, rental revenue grew, though at a slower pace than North America during 2022/23, in what is a relatively more mature rental market. We continue to take market share and exploit opportunities in new business areas as well as working to improve the market efficiency of our operations. The US rental market is nine 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 growing 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 we build brand awareness and customers get more accustomed to renting a wider range of equipment and become more familiar with the quality of service we deliver. Our aim is to grow the business wherever we are in the economic cycle and no matter what circumstances we face.
The breadth of our markets
Our markets continue to expand, in terms of geography, range of equipment rented and the applications for which our equipment is used. Our end markets are increasingly diverse with significant cross-selling between General Tool and Specialty. The graphic shows the diversity of end markets that use our equipment. 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 television production to home decor. Our customers are equally diverse from multi-national organisations to DIYers. 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 Availability, Reliability and Ease. For any 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 continuing structural change most noticeable in the US and Canada.
Construction remains a core part of our end markets but we see plenty of growth opportunity for our General Tool and Specialty businesses in areas such as live events, building maintenance, municipal activities and emergency response. We commonly refer to these end markets, and many more, as MRO or, the ongoing maintenance, repair and operations of the geographic markets we serve. These incredibly large addressable markets make up the majority of our Specialty revenues and they also benefit our General Tool business through cross-selling.
A big change in recent years has been the increase in rentals taking place in ordinary square footage under roof applications and we expect this trend to continue. Increasingly we are seeing bigger, longer construction projects, often over several years. We now refer internally to projects worth over $400m as mega projects. There are also three US legislative Acts that are fuelling growth which we discuss below. In addition, we are designated 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, until recently, the pandemic.
The length of time that customers rent equipment is also increasing. Not only are large projects lasting longer, but rental is now essential to these rather than being more ‘top up’ in nature, as it used to be. We are also seeing customers renting equipment longer to move to the next job or project.
Dodge Construction Starts show strength and growth. The non-residential and non-building components of the construction end market are proving to be incredibly strong and forecasts show that continuing. A non-residential slowdown in the pandemic was softened by strength in residential construction, but this has bounced back and we saw a strong uptick in starts in 2022/23. This is not a residential uptick as experienced in 2020/21, but the early wave of new project starts derived from a combination of private investment and legislative led federal project funding and incentives.
A large number of new projects have recently begun and many more are in planning. We believe the forecasts for the heart of our construction end market, specifically non-residential and non-building, combined with strength over the last several quarters and the recent spike in starts, together translate into consistent growth in activity levels for the next several years.
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 competitors are United Rentals and Herc Rentals with 17% and 4% respectively. Home Depot, and H&E have shares of c. 2%. 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 technology 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. While 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. However, a significant market for us is facility maintenance, repair and operation of the geographic markets we serve characterised by square footage under roof. In the US there are 100bn square feet under roof and we believe this represents a potential rental market of $7-10bn, with minimal rental penetration currently. 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 continue to set ambitious targets with our long-term market share target of 20%. The speed at 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, which you can read more about on page [●], 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.
As we increase our market share and grow our Specialty businesses, they become a greater proportion of the business mix across the cycle and accounted for c. 30% of revenue in 2022/23. 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
Rental penetration continues to deepen and those benefitting from this increased rental penetration are the larger, more experienced, more capable rental companies who can position themselves to be there for this increasing customer base and capitalise on this larger market.
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 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. 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 replace less and rent or, in the case of smaller competitors, 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. 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.
Our development and use of technology is also driving rental penetration. Our highly sophisticated proprietary customer management, inventory and delivery tracking systems all contribute to this trend.
Canada remains a relatively new and growing market for us. The overall 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. Our share of the Canadian rental market is around 9%. There is plenty of scope to develop this in the same way as in the US and we are growing rapidly. We are seeing continued market growth in 2023 and S&P Global Market Intelligence predicts Canadian rental revenue to grow 3% in 2023, 4% in 2024 and 6% 2025. We anticipate growing more rapidly as we take market share and broaden our offering.
Our original Canadian business goes from strength to strength as it takes advantage of its increasing scale and breadth of product offering as we expand our Specialty businesses and look to build out our clusters in that market. Our lighting, grip and lens business continues to encounter a degree of market disruption with the threat early last year of strike action in the Vancouver market resulting in productions being delayed or transferred elsewhere. It is now navigating the impact from the Writers Guild of America strike.
We have grown to 119 locations across Canada. Key of course to delivering on our mantra of Availability, Reliability and Ease is convenience, proximity and diversity in our offering. We have a significant presence in Ontario and have expanded in Edmonton, Calgary, Winnipeg and, with the Modu-Loc acquisition, we entered Quebec. Beginning with a complement of General Tool businesses and adding Specialty into the mix to introduce cross selling, our runway for growth in Canada remains long.
The rental market has, historically, been construction focused, but we continue to develop new markets such as the film industry in Vancouver and Toronto through our lighting, grip and lens business, William F White (WFW). The WFW business also provides a platform to expand our lighting, grip and lens Specialty into the US and UK markets. In addition, we have continued to expand our power and flooring solutions Specialty businesses in Canada. Customers who traditionally rented mainly mobile elevating work platforms (‘MEWPs’) are now renting smaller equipment as well. They are seeing increasingly the benefits of working with us to fulfil the full range of their equipment needs. Our cluster approach also means we are able to be closer to our customers than has previously been the case.
Across the country there are variances in the mix of fleet we have on rent. In Western Canada we see more customer demand for MEWPs especially through our work servicing the film and television industry. We see great opportunities for expanding our Specialty and MEWP businesses, especially in Ontario, aided by the growth of our lighting, grip and lens business. As we expand in other provinces we expect to generate more business from Canada’s resources industry.
Over time we would expect our Canadian market share to be similar to that in the US.
Our UK business continues to grow despite the lost rental revenue associated with the Department of Health testing sites that was a substantial part of our revenues in the previous two years. This is no small accomplishment, signalling a combination of market share gains and a reassuring level of end market activity, particularly in infrastructure and industrial projects as well as increasing progress into areas such as facility maintenance being brought about by our unique cross-selling capabilities across our unmatched product and services portfolio.
Live events have been an ongoing contributor in this post pandemic period which were, of course, virtually non-existent throughout 2020 and 2021. The team was incredibly proud to provide our products and services to assist with Queen Elizabeth II’s platinum jubilee and state funeral.
A consistent area of focus to improve our UK business has been on advancing rental rates and the associated fees we charge to provide services to our customers. Although progress has been made, there is still work to be done in this area. This is something the UK rental industry falls behind in and our position will be steadfast in making a demonstrable change in the face of the notable inflation our business and the industry as a whole has absorbed.
We continue to see significant opportunities in both construction and non-construction markets in the UK as in the US and Canada. We will continue to invest responsibly in the UK market as we seek to increase market share and enhance returns.
Market share in the UK
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 have a 13% 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. We have 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, a key element of our strategic plan, Sunbelt 3.0.