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July 26, 2014

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Report: Don’t bet on Las Vegas Strip comeback in 2011

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Justin M. Bowen

A report released Wednesday indicates trends show the Las Vegas Strip won’t recover in 2011 from the economic downturn.

While some industry observers point to recent increases in gambling revenue, tourism traffic and room rates as a sign that a recovery is under way, analysts at CB Richard Ellis in Las Vegas are popping that balloon, calling such figures a temporary aberration and forecasting earnings declines for most Strip’s casinos next year.

Lackluster home prices, rising airfares and a declining sweet spot for Las Vegas customers – visitors in their 40s and 50s with money to burn – will result in revenue and earnings declines for most casinos on the Las Vegas Strip in 2011, according to a report released today by CB Richard Ellis’ Global Gaming Group.

The 100-page document – which relies in part on third-party research on such topics as home prices, home equity and consumer spending – is the latest testimonial to the recession-era reality that new Strip resorts have diluted earnings for competitors instead of boosting results. The casino industry has adjusted accordingly, and no new resorts are planned on the Strip for years after the 2,995-room Cosmopolitan Las Vegas resort, the last holdover from boom-era development, opens for business Dec. 15.

Demand could once again outstrip supply in 2012, the report said. That might only be in the cards, however, if home prices – a major source of Baby Boomer wealth – increase more than expected next year.

A bright spot in the report is revenue from baccarat – a game favored by high-rollers from Asia and especially China, where low interest rates and a growing economy is encouraging spending. The report forecasts a 10 to 20 percent increase in baccarat and mini-baccarat revenue on the Strip next year.

Excluding baccarat, which only benefits the handful of high-end casinos on the Strip that offer it, gaming revenue on the Strip is projected to decline from 2 percent to 4 percent next year, the report said. That estimate also excludes revenue from the Cosmopolitan.

Overall, Las Vegas Strip gambling revenue – including results from Cosmopolitan and baccarat – is expected to decline by as much as 1 percent or increase by as much as 4 percent next year compared with 2010, the report said. The inherent volatility of baccarat, given the large wagers concentrated among a select few gamblers, accounts for most of the disparity in results.

Visitors who come to Las Vegas for pleasure rather than business represent at least 80 percent of the market. Leisure travel trends don’t look good for the Strip, however.

Nearly half of Las Vegas visitors get here by plane, yet analysts project flat to declining airline capacity at McCarran Airport next year in spite of an increase in travel demand – a sign that airfares will continue to rise in 2011, the report said.

“That means less money in people’s pockets once they get here,” which will hurt budget properties most because their clientele can least afford such increases, said report co-author Jacob Oberman, senior director of gaming research and analysis for CB Richard Ellis and a former financial analyst for the Bellagio resort.

In addition, Baby Boomers are exiting their peak spending years as they retire, while the population of potential visitors in their peak spending years ages 44 to 52 is declining.

Housing prices nationwide aren’t expected to increase significantly enough next year, Oberman said, for retirees to feel wealthier and thus, spend more. If home prices rise more than experts predict next year, or by 5 percent or more, people may start to feel more confident about their ability to spend, he said.

“Either a lack of material home price appreciation or outright home price declines, as projected by some economists, will not provide the increase in household equity that we believe would be necessary for leisure spending growth on the Strip,” the report said.

Before the recession, about half of “pre-retiree” wealth was tied up in real estate, said co-author Brent Pirosch, director of gaming consulting services for CB Richard Ellis and a former financial analyst for MGM Resorts, then called MGM Mirage. Homeowners are now forced to save to make up for wealth lost from 2007 through 2009, he said.

Many consumers are still struggling to pay down credit card debt or have had their credit lines cut off completely, he added.

And employment is expected to remain weak in 2011, pressuring consumers to save and hold off on spending “in highly discretionary areas” such as casino resorts, the report said.

The Strip could benefit somewhat by an increase in international visitors, a small but growing segment for Las Vegas, as it receives new international flights from Great Britain and France.

A larger positive for the Strip is an expected uptick in convention customers in town on business.

Based on discussions with meeting planners, the report forecasts a 15.5 percent increase in convention and meeting demand, outstripping the 3.1 percent increase in room nights that will be available next year with the opening of Cosmopolitan and additional rooms at CityCenter, the report said.

This means Strip casinos, the report said, won’t need to rely as much on tourists to fill rooms. Also, overall competition for customers, though fierce, isn’t expected to intensify for Strip casinos in 2011 as compared with 2010, when they slashed prices to attract business.

Since hitting bottom in early 2009, a rising stock market has helped increase corporate confidence in booking meetings and other events for their businesses, the report said. It said a declining market could short-circuit convention growth, however.

The forecast marks the second of its kind for CB Richard Ellis, which released an 85-page report a year ago correctly concluding that 2010 revenue would decline for Strip casinos that were operating prior to CityCenter, which opened in December 2009.

At the time, analysts were divided on how CityCenter would affect the Strip, with many expecting it would boost revenue for competitors like major resort openings did years ago.

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  1. I just love the way liberals are smiling, slapping each other on the back, giving themselves a high 5 - Wow - another year of misery for Nevada. Way to go Reid - let's vote together for more misery. Let's slam seniors, families, workers, unemployed....Way to go Reid!!! Wow-wow-wow! You've insure the economy is bad for another few years. Way to go stimulus - the savior of the Liberal Progressives (Progressive? Such lies).

    If you love to slam seniors, love down economies, love teachers spending more on political campaigns than in the classroom (your taxes pay for their slime ads), then vote for Reid.

    For families, America, the flag, brave men and women...Dump REID! Dump OBAMA! and his thief of aa wife who travels at taxpayer expense to Europe and does not even stay in the US.

    Anyone who votes for Reid votes for tramping on seniors - and guess what, unless you die and pay Reid's death tax - you too will be a senior some day.

  2. Chunky says:

    He's been beating this drum for going on two years now; it's a deep economic cycle, politicians can't fix it and it's going to be awhile. There's no magic pill other than time to sort this out. Chunky doesn't need a hundred page report to know this.

    Save whatever money you can, invest in precious metals and realize neither the government or populace will be able to spend their way out of this!

    That's what Chunky thinks!

  3. What's the name of that bridge that was sold and shipped to Arizona?

    Ah...the London Bridge, right?

    What would be the cost of shipping these casinos to Macao, brick by brick?

    These buildings apparently have no value here.

    But I guess we can cross "that bridge" when we come to it.

    Oh wait! We're there!

  4. We, the people of Michigan, feel your pain as we are not looking any better in terms of an economic turn around for our state. High unemployment, rising home foreclosures and loss of tax revenues are all decimating our future outlook. Our three downtown casinos are doing quite well though. The locals must be spending their mortgage money and unemployment checks at the casinos.

  5. I'm sure Sharron is playing all the time on the Strip.

  6. The CBRE report predicts a 15% increase in convention business and a possible 4% increase in gambling revenue. For a town with 15% unemployment, those are decent numbers. Much more so than the headline implies.

  7. Went to a show a few weeks ago. The couple sitting next to us said they were having a great time, but their biggest complaint was the price of food and drinks. Statement was that the food was exteremly expensive for what they got. Maybe if food and drinks got resonable, people would come back.

  8. I was on the Strip the other day last week and saw that giant sign on one of the hotel towers, advertising these "all-you-can-eat buffet passes" for 39.95 dollars. They are trying everything to piggen you up at high speed. I was shocked when I saw this ad, and I would never ever recommend buying such a day pass.
    Please, beware before you fall into this trap! Nobody should visit a buffet more than 1x/day, 2x to the most. And 3x is insane and will not make you feel good. This way the casinos are only hedging their possible losses on the buffets and if just enough idiots buy this all-day-pass, the food cost is paid, even if not enough is being eaten.
    There are definetely lots of good and inexpensive dining facilities in Las Vegas. So the couple complaining about the high food costs must have forgotten to do its homework before their trip started. Nobody on a tight budget should go for dinner on the Strip. And the people that do so, should not complain about the high food costs. The first and nearest good and fairly inexpensive dining option, that's the Gold Coast hotel, which can be reached by using the free shuttle that leaves from the Bill's Casino every few minutes. So nobody should say he has to pay too much for eating in Las Vegas. Sorry, but that's not true.

    From Switzerland

  9. Vegas or anyother city is not coming back until the masses have some discressionary money to spend.

    If the (Have's) are going to hoard it and not share it the masses. Most of us will continue to go thru life in a very mundane way.

    Think back, it started back in the "Yuppie" generation. (ME - ME ME AND WHY NOT?). We are very close to becoming a third word country. So God Bless America and all that. So Granchildren listen.This is your inheritance we are talking about.

  10. When you purchase the American Casino Guide you will invest perhaps 20 dollars or so. But the real value and savings you can have is multifold. plus, there are valuable match play coupons and free slot play and stuff like that inside. So, visiting Vegas without such a coupon book is no longer an option for me. And to the people that have never heard of such a coupon book, go ahead and google it up. I am not an affiliate of this company, but I am a regular customer of that book as I appreciate the value of the savings. This will result in additonal spending money for videopoker or whatever I like to spend it. And this is something that's giving me a real up-lift on my Vegas vacation, with or without crisis.

    From Switzerland