Our markets continue to evolve and our strategic plan, Sunbelt 3.0, is taking us into ever more markets, both by geography and function. Construction will likely remain our largest market in terms of the equipment required, particularly given the 2021 US infrastructure bill, but non-construction continues to expand rapidly as we service new markets through the amplification of our Specialty businesses.
The US continues to be our largest market with strong performance 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 bearing fruit. We are excited by the future prospects for the UK business supplemented by targeted bolt-on acquisitions to develop the business further. 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 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 customers get more accustomed to renting a wider range 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 circumstances we face.
All our markets were affected by the COVID-19 pandemic, but they are offering us new opportunities now that the impact of the virus appears to be declining in our principal markets and the long-term attractiveness of our markets has not changed. We also see opportunity in the market where others see potential problems, specifically concerns about equipment and labour supply, as well as an increasingly inflationary environment. When you put these three together, we believe they are structural tailwinds to our business. Specifically, they will foster deeper rental penetration and those with scale, experience to execute, technological advantages, great levels of customer service, a culture of people engagement and financial strength, will benefit disproportionately.
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 graphic detailing the markets we service shows the diversity of the end markets that are using 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 putting up Christmas decorations. 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 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 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 maintenance, repair and operations of the geographic markets we serve. These incredibly large addressable markets make up the majority of our Specialty revenues; however, increasingly they also benefit our General Tool business as our cross-selling prowess continues to improve.
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. Increasingly we are also seeing bigger, longer projects often over several years. We expect the $1 trillion US infrastructure bill to further fuel this trend. 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 core 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.
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
Our core US markets were adversely affected by COVID-19 but we are exceeding pre-pandemic levels and the longer term prospects for rental and our products and services remain strong. We expect to perform better than the market as we expand further our Specialty businesses and continue to take market share.
Construction starts have continued their recovery and are now above pre pandemic levels with forecasts showing further growth through 2026. There remain significant levels of construction activity in areas such as warehouses, data centres, distribution, fulfilment and manufacturing such as electric vehicle factories, lithium battery plants and new liquid natural gas plants. We believe we are likely to see continued changes in construction focus, shifting away from retail, new hotels and office buildings into these kinds of infrastructure projects supporting the transition to a greener economy. These are all examples of an abundance of large scale, multi-year projects that are in early-stage construction or late in the planning phase. Projects that we are positioned to serve in a meaningful way, more so than at any point in our history. We also expect to see more large projects as a result of the 2021 infrastructure bill.
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 16% and 4% 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 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. 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. However, a significant market for us is facility maintenance, repair and operation 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 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 tripled 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 and accounted for 30% of revenue in 2021/22. 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 2022, 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.
Our customers often assume we will be able to fulfil their equipment needs with a rental product for an ever-widening range of applications. If your fleet consists of equipment which is already predominantly rented and hence, have high rental penetration like telehandlers and large booms, you are not necessarily benefitting from increased rental penetration as it is probably as high as it is likely to get. However, if you have a broader mix of fleet, then there is significant further upside to come from increased rental penetration. Further, the current unique circumstances of growing demand and constrained equipment supply, serve as a perfect catalyst to encourage and increase the structural shift from ownership to rental. This is exactly what we believe is happening during this inflection period in the market.
Our development and use of technology is also driving rental penetration. Our highly sophisticated proprietary customer management, inventory and delivery tracking systems enable us to make our customers’ rental experience one of Availability, Reliability and Ease. Our customers are increasingly willing to rent different types of equipment from us, more often.
Canada is still 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 8%. There is plenty of scope to develop this in the same way as in the US and we are growing rapidly. We have seen continued market growth in 2022 and we anticipate growing more rapidly as we take market share and broaden our offering.
From our humble beginnings in western Canada, we have grown across Canada. 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 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. 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 rental 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.
Given our continued growth in Canada, we are now targeting 10% market share.
The UK market remains competitive but we have never been positioned better to deliver the Power of Sunbelt to our customers. Bringing all the UK businesses together as Sunbelt Rentals, and the launch of Sunbelt 3.0, has changed the face of our business and is paying great dividends as we outperform the market, leading, in particular, to gains in the ongoing construction and maintenance-related rental space. Last year growth continued and the business has achieved encouraging customer wins and an impressive sales pipeline. We are known for being able to deliver a range of general and specialist products and services unlike any other in the market and have an increasingly good track record of coming through in even the most challenging of circumstances. New customers gained and those in the pipeline are the most diverse in terms of end markets served in our UK history.
Last year a large proportion of revenue (around 30%) came from our COVID-19 work for the Department of Health. When there is any kind of emergency, in any of our territories, we are usually brought in to help. When free mass testing ended in April 2022, that revenue largely stopped. However, the core business continues to perform strongly and we are benefitting from improved cross selling and operational advancements very much at the centre of our Sunbelt 3.0 plans. We remain in the early stages of forging our path to sustainable long-term results and returns, but are creating sustainable cultural change.
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.
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 10% 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.