Rental industry Summary

  • Last updated on November 10, 2022

In a little more than sixty years, the American rental industry grew from a young market into a mature industry that in 2007 pumped hundreds of millions of dollars in revenues into the American economy.

Although the rental industry actually began after World War II, it was during the 1980’s that conditions were ripe for its growth. President Ronald Reagan’s tax-reform policies for eliminating tax investment credits and curtailing depreciation allowances for capital equipment provided companies with incentives to rent necessary equipment rather than lay out the purchase costs and then struggle to keep it operating. For years, rental companies had been mostly small, family-owned concerns, and they lacked the inventories to supply the demand in the 1980’s. Rental houses that could raise the capital raced to invest in inventories and aggressively pursue industrial companies to supply the equipment they required on a short-term basis and for far less money than it would cost to buy the equipment outright.Rental industry

Revenues from the equipment rental industry in 1984 reached $1.6 billion and climbed throughout the 1990’s. In 1997, the number of independent rental agencies–many maintaining one or two stores–had reached 77 percent of the total rental agencies and the annual revenues increased to $18 billion. At this time, the thousands of separate businesses that had jostled for advantages began to merge into major rental companies. The growth of the rental industry had not peaked, as a great many industrial companies still wanted to discard the obligations of ownership and avoid the capital investment tax by renting rather than owning. The equipment rental industry, which began as a fledgling business during the 1980’s, became a mature business during the early years of the twenty-first century, surviving slowdowns during the early 1990’s and during the early twenty-first century but sustaining growth spurts during the late 1990’s and after 2003. Amazingly, the industry even grew through the housing decline and into 2007. In 2007, revenues topped out at $36.5 billion.

The American Rental AssociationAmerican Rental Association provides industry information to rental business owners, aids them with training employees and managing their business, and assists equipment manufacturers in locating rental agencies that need their products. The ARA breaks down the equipment rental business into three divisions: industrial and construction equipment; home-improvement or repair tools and lawn and garden implements; and apparatus for weddings or parties. The general tools for smaller do-it-yourself projects have led the market for the past decade, posting a profit of $8.5 billion for 2007. The party and special events market had revenues of $2.1 billion for 2007 and was predicted to be the strongest-performing market area of the forecast for 2007-2012.

Consumer Products and Automobiles

The consumer product rental industry, which includes digital versatile discs (DVDs), electronics, appliances, and home health equipment, generates annual revenues of $22 billion, with DVD rentals accounting for more than half the total. DVD rental stores, specifically Blockbuster, have experienced revenue losses because of online rentals, which feature convenience. Also entering the rental competition are no-return DVD’s that degrade within a short period, therefore limiting their viewing time, and computer movie downloads that have limited accessibility.

The Automotive industry;rentalsautomobile rental industry, which began to grow after World War II, was connected from the beginning with the airline industry. Early rental agencies, such as Hertz and Avis, located their businesses at or near airports and advertised through the airlines. During the 1960’s, a number of smaller family-owned car rental agencies arrived on the scene and provided strong competition for the older companies. Fledgling Enterprise Rent-a-Car led a trend to locate businesses in downtown neighborhoods and away from airports. During the 1980’s, to improve sluggish new automobile sales, automobile manufacturers offered rental agencies new car reductions.

During the 1990’s, as the automotive industry improved, the car rental industry began to struggle with extra costs. With the rise in fuel costs in 2007-2008, rental agencies found themselves struggling to meet the demand for fuel-efficient cars and hybrids, while customers struggled to pay gasoline prices that could double or triple the cost of renting a sport utility vehicle.

Housing

In rental Housinghousing, the vacation rental industry began during the 1970’s as an offshoot of ski resorts and was assisted during the 1980’s by the advent of the condominium time-share concept. In 1998, ResortQuest was formed by the merging of eleven companies that managed resort rentals and became the first nationwide vacation rental agency. Despite the travel setback following the terrorist attacks of September 11, 2001, the industry in 2004-2007 was in a strong growth cycle. The revenues for vacation rentals in 2007, according to some estimates, reached $63 billion, or about half the annual revenues for hotels. Some rental entrepreneurs see vacation rentals in direct competition with hotels and find that advertising online is a valuable tool for making customers aware of rental homes and condos as well as for debunking the myth that rental vacation houses and condos are much more expensive than hotels.

Although many rental homes in 2007-2008 were afflicted by record foreclosures and the immediate eviction of the occupants, foreclosures also affected the availability of low-cost housing. During this time period, the number of landlords defaulting on their mortgages increased. This led to foreclosed and abandoned rental properties, diminishing the number of units available to people and raising the rent on existing rental properties.

Further Reading
  • Ault, Suzanne. “Kiosks Nip Rental Biz.” Video Business, December 18, 2006. Kiosk Operator, Redbox, co-owned by McDonalds, bites into traditional video rental revenues with one-dollar-a-night DVDs.
  • Bensinger, Ken. “Car Rental Companies Caught Short as Demand for Smaller Vehicles Soars.” Los Angeles Times, July 14, 2008. Analyzes the pressures felt by car rental agencies from major carmakers in 2008 who have stopped selling new cars to rental companies at a discount, and who pay less to the rental agencies in the buy-back.
  • Krueger, Luke. A Noble Function: How U-Haul Moved America. Fort Lee, N.J.: Barricade Books, 2007. The story of U-Haul, a major moving truck rental company, from its beginnings.
  • Phillips, Kevin. Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. New York: Viking Adult, 2008. Discusses America’s economic policies, mounting debt, mortgage and housing crisis, and rising fuel costs as indicators of a national crisis that foreshadows the end of America’s dominance in the world market.
  • Retsinas, Nicholas, and Eric S. Belsky, eds. Revisiting Rental Housing: Policies, Programs, and Priorities. Washington, D.C.: Brookings Institute, 2008. Examines rental housing with respect to governmental policies, including subsidized housing.

Commercial real estate industry

Residential real estate industry

Retail trade industry

Video rental industry

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