Renting vs buying heavy equipment
By Matt Smith, associate head, School of Energy, Geoscience, Infrastructure and Society (EGIS), Heriot-Watt University Dubai.
In the construction market, renting and buying heavy equipment is seen as a key asset for organisations. For today’s landscape, having access to the right equipment is crucial for securing client focused work. The construction industry can become very competitive, such that additional equipment can put a contractor ahead of the competition. Overall, the buy or rent option in certain instances depends on how frequent the organisation can prorate these costs and their overall budget.
Matt Smith, associate head, School of Energy, Geoscience, Infrastructure and Society (EGIS), Heriot-Watt University Dubai.
According to The Market Study Report LLC, the global construction equipment market is expected to gain growth in the forecast period of 2020-2025. With a CAGR of 2.2% in the forecast period of 2020 to 2025 and is expected to reach 126.7 million by 2025, from 116.1 million in 2019. The Middle East is certainly a global player in this growth: the UAE in particular seeks growth and development in various industries for the UAE 2020 vision which includes vast construction projects emerging for Expo 2020. The key growths in Dubai’s construction market include the Emirate’s strong economic vision to drive a diversification strategy, and a steady increase in the population and rise in tourism. In addition to this, the government initiative is to create sustained infrastructure in buildings and transportation which requires a copious amount of construction equipment. These key growths in the market sector will require organisations to ensure that their construction equipment will suffice to deliver such large projects.
The construction machinery growth market in the GCC region is expected to witness a fast-growing rate at 4.12% during the forecast period of 2019-24 according to the GCC Construction Machinery Market Growth and Trends report. There are several economic factors with indicate the prosperity of the region and the demand for construction companies to leverage their equipment and meet the demands in growth.
Let’s evaluate the pros and cons of buying vs renting heavy construction equipment:
Pros and cons of renting heavy equipment
Many organisations see the benefit of renting heavy equipment, particularly for short term projects as it is seen to be more feasible to make a one-time investment into machinery. The rental benefits allow for large companies to augment their fleet when and where needed, a smaller company can also benefit from this if they are proposed with work that requires speciality equipment for a niche market. The range of capabilities among equipment sizes can enable a company to adapt and accommodate various projects and return the equipment that is not needed to rental companies. Therefore, the rental system can prove to be more flexible and economically viable.
In addition, renting equipment can decrease long-run expenses, overtime many construction organisations need maintenance teams and consultants devoted to upkeeping their mechanics. When renting machinery, the maintenance and service in a product is already offered to the client at the utmost of standards, therefore reducing maintenance upkeep.
The Worldwide Construction Equipment Rental market report 2019 centres on an extensive research study of the global construction equipment rental market and has identified that
key drivers within the construction market have boosted the equipment rental market sales over the forecast period 2019-2026. With forecast showing an increase in demands for rental markets, it is evident that construction companies see the benefit in renting over purchasing as it can more economically viable and flexible.
However, the rental system does have its flaws. Large profitable organisations can favour longer term investments and consider buying heavy equipment as an efficient way to secure projects without delay. Additionally, if construction projects were to run for long periods of time, organisations may wish to purchase in order to guarantee the availability of the product and sustain the machinery needed for that amount of time.
Pros and cons of buying heavy equipment
Owning equipment and tools is considered to be a large asset of an organisation and it determines immediate opportunities. The benefits include the freedom to make changes where necessary, organisations can modify when they see fit. In addition, organisations can customise their equipment to meet their unique needs, with the freedom of choice to pick and choose high-tech brands and models when required.
With the demands in construction projects across the UAE, it could be favourable for organisations to invest in their equipment in order to be ahead of the competition. An organisation who is fully equipped will have immediate availability to address the demands in the UAE. An analysis based on recent data BNC, IMF, Haver Analytics and Fitch Connect, revealed that the construction sector contributed an estimated 6.4% to Dubai’s GDP in 2018. Currently, there are 4,792 current active projects in Dubai, accounting for 42 per cent of the UAE’s total. It is no doubt that construction machinery should be at hand and ready to meet such an increase in growth expectations.
The disadvantages of buying equipment will vary for different organisations, and there are several factors to consider. Capital equipment is useful to have at hand, but it comes with maintenance duties that require a high cost.
Any organisation that decides to purchase a new piece of equipment will need a short- and long-term storage solution. It is important to ensure that a vital new piece of equipment is not sitting out in the blazing sun, driving rain or blustery winds. Continuous exposure to the elements and a poorly ventilated storage space will degrade machine quality. For purchasing to be successful, a high capital investment must be made in order to ensure that storage units are in place.