Las Vegas Casino & Hotel Market Outlook 2009
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Las Vegas Casino & Hotel Market Outlook 2009 Shannon Okada, Associate Director, HVS Gaming Services HVS — Las Vegas HVS — LAS VEGAS 8170 W. Sahara Avenue, Suite 201 Las Vegas, NV 89117 United States of America +1 (702) 242-6723 OFFICE MAIN TELEPHONE HTTP://WWW.HVS.COM January 2009 New York San Francisco Boulder Denver Atlanta Miami Dallas Las Vegas Chicago Washington, D.C. Weston, CT Boston Mt. Lakes, NJ Mexico City Vancouver Toronto London Moscow Madrid Athens Dubai Mumbai New Delhi Singapore Hong Kong Beijing Shanghai São Paulo Buenos Aires Las Vegas Casino and Hotel Market Outlook 2009 Shannon S. Okada Associate Director Gaming Services Division, Vice President Consulting & Valuation HVS – Las Vegas Any previously held notion that the Las Vegas gaming-tourism industry is recession-proof was dispelled in 2008 as, to quote the Las Vegas Review Journal, “the imploding economy drove a stake though the heart of the Strip.” The downturn in the national and worldwide economies, and the resulting decrease in consumer consumption, has reduced visitation to the Las Vegas market in 2008 to levels not seen since 2004, which was prior to the opening of major properties including the Wynn Las Vegas, South Point, Red Rock Station, Palazzo, and Encore. As quality new supply is absorbed and operators have implemented strategies to compete for overnight guests to support gaming and other amenities, average daily room rate has dropped. The recession is prompting visitors and locals to gamble less. Challenging economic conditions, including the turmoil in the credit markets, have also resulted in a scaled-back development pipeline. Ultimately, Las Vegas’ recovery is not expected until economic conditions improve and the resulting resumption of consumer confi dence and spending. he economic driver of Las Vegas1 is obviously Table 1 – Las Vegas Visitors Ttourism and related service sectors. In addition to tourism, Las Vegas’ economic base continues Year Total Visitors % Change to diversify into areas such as manufacturing, 1990 20,954,420 --- distribution, wholesale trade, and construction. 1991 21,315,116 1.7 % While these sectors have emerged within Las Vegas, 1992 21,886,865 2.7 the area’s driving force is, and will continue to be, 1993 23,522,593 7.5 gaming-related tourism, which is highly dependent 1994 28,214,362 19.9 upon consumer confidence and spending. 1995 29,002,122 2.8 Visitation 1996 29,636,361 2.2 Las Vegas has a long history of consistent growth. 1997 30,464,635 2.8 Las Vegas has been experiencing year-over-year 1998 30,605,128 0.5 increases in the total number of visitors since 2002, 1999 33,809,134 10.5 growing to roundly 39,200,000 visitors in 2007. 2000 35,849,691 27.1 The only annual decline in visitation in the period 2001 35,017,317 (2.3) from 1990 to 2007 (2.3%) was a result of the terrorist 2002 35,071,504 0.2 attacks in 2001. Visitation to Las Vegas increased 2003 35,540,126 1.3 at an average annual compounded rate of change of 1.9% for the period from 2001 to 2007. Table 1 2004 37,388,781 5.2 depicts the number of visitors to Las Vegas from 2005 38,566,717 3.2 1990 through November 2008 based on data from 2006 38,914,889 0.9 the Las Vegas Convention and Visitors Authority 2007 39,196,761 0.7 (LVCVA).2 Year-to-date through November: New gaming and hotel supply, entertainment, 2007 36,120,930 --- attractions, and other amenities have historically 2008 34,741,853 (3.8) provided an impetus for increased visitation. The development of must-see properties, attractions, Average Annual Compounded and amenities, including the Luxor, Treasure Island, Change, 1990-2007: 3.8 % and MGM Grand Hotel, in 1993 contributed to the Average Annual Compounded 1 Change, 2001-2007: 1.9 % Las Vegas is located in Clark County, Nevada. 2 Note that Las Vegas visitor data for December 2008 is not Source: Las Vegas Convention & Visitors Authority available as of the date of this article. Page 1 HVS – ALIS, January 2009 Las Vegas Casino and Hotel Market Outlook 2009 Shannon S. Okada 19.9% increase in visitors in 1994 and was a clear decline of 3.8%. In November 2008, the latest month indication that Las Vegas was transitioning from a for which data is currently available, visitation to solely gaming-based orientation. The major wave of Las Vegas was down 9.8% compared to November expansion that began in 1998, which included the 2007. Chart 1 sets forth the number of monthly Las opening of the Bellagio, Mandalay Bay, Paris Las Vegas visitors over the last four years. Vegas, Venetian, and Planet Hollywood (previously As indicated in Chart 1, the number of visitors to known as the Aladdin), contributed to the 10.5% Las Vegas on a monthly basis during the first half increase in visitors in 1999 and 27.1% increase of 2008 was relatively comparable to that in 2006 in 2000. These developments have increased and 2007. However, the number of visitors from gaming demand and changed the overall revenue California, a major feeder market for Las Vegas, mixture from primarily gaming to a more balanced began to decline as gas prices reached record heights distribution between gaming, hotel, retail, and during the summer and as the economic downturn entertainment. However, as a result, the market worsened through the year; the number of visitors has become more susceptible to downturns in the during the months of September, October, and economy and declining consumer consumption. November 2008 were 10.1%, 10.2%, and 9.8% lower, Year-to-date data through November 2008 clearly respectively, than during the same months in 2007. indicates that the largest year-over-year decline in As indicated in Chart 1, the number of visitors total visitation to Las Vegas over the time frame during these three months was less than visitation examined was experienced in 2008. Through during the same three months in 2004. November 2008, there were nearly 1.4 million fewer While the major developments currently in the visitors than during the same period in 2007, a Chart 1 - Las Vegas Monthly Visitation (2004-2008) LAS VEGAS MONTHLY VISITATION (2004-2008) 3,600,000 3,400,000 3,200,000 3,000,000 2,800,000 2004 Visitors 2005 2,600,000 2006 2007 2008 2,400,000 2,200,000 2,000,000 . ) n b r r y e ly g t t. v 8 a e a p a n u u p c o 0 J F M A M Ju J A e O N ' S /o (w . c e D Page 2 HVS Las Vegas – ALIS, January 2009 Las Vegas Casino and Hotel Market Outlook 2009 Shannon S. Okada pipeline, including MGM’s CityCenter, may drive generate patrons for their casinos. Hotel occupancy additional visitation, it is unlikely that the growth has historically been higher than motel occupancy in visitation will reach double digits as in 1994, and has been over 90% since 2004. Growth in 1999, and 2000 due to the prevalence of available lodging demand has historically been a function of gaming alternatives nationwide and throughout new supply and resulting visitation, as evidenced the world. Since 2004, several quality properties by the increases in occupied rooms of 17.4% in have opened in Clark County, including the Wynn 1993, 13.0% in 1996, and 12.8% in 1999. Table 2 Las Vegas in April 2005, South Point (previously presents Las Vegas lodging market statistics from known as South Coast) in December of 2005, Red 1990 through 2007 and the year-to-date periods Rock Station in April 2006, Palazzo in December through November 2007 and 2008. 2007, and Encore in December 2008. The fanfare As presented in Table 2, available inventory and and increased visitation upon the opening of occupied rooms increased at average annual these properties have been noticeably insignificant compounded rates of 0.4% and 1.0%, respectively, relative to that experienced during previous waves between 2004 and 2007. Overall, total occupancy of development. remained relatively stable during this time. Lodging Demand As previously indicated, several quality properties Historically, the Las Vegas lodging market attained have opened since 2004, including the Wynn Las occupancy levels well above the national average Vegas, South Point, Red Rock Station, Palazzo, and due to the need for casino operators to fill their Encore. Additionally, the Stardust closed in 2006. rooms at a market-driven price point in order to In the period from 2004 to 2007, average daily rate increased at an average annual compounded rate Table 2 - Analysis of Las Vegas Lodging Statistics Total Hotel Motel Total Overall Year Inventory % Change Rooms Occupied % Change Occupancy Occupancy OccupancyADR % Change 1990 73,730 --- 22,793,998 --- 89.1 % 69.8 % 84.7 % N/A 1991 76,879 4.3 % 22,532,851 (1.1) % 85.2 62.6 80.3 N/A 1992 76,523 (0.5) 23,434,021 4.0 88.8 66.1 83.9 N/A 1993 86,053 12.5 27,514,586 17.4 92.6 69.7 87.6 N/A 1994 88,560 2.9 28,768,716 4.6 92.6 73.2 89.0 N/A 1995 90,046 1.7 28,922,775 0.5 91.4 72.4 88.0 N/A 1996 99,072 10.0 32,689,797 13.0 93.4 75.7 90.4 N/A 1997 105,347 6.3 33,222,230 1.6 90.3 68.8 86.4 N/A 1998 109,365 3.8 34,249,837 3.1 90.3 67.3 85.8 N/A 1999 120,294 10.0 38,638,433 12.8 92.1 68.6 88.0 N/A 2000 124,270 3.3 40,414,468 4.6 92.5 71.9 89.1 N/A 2001 126,610 1.9 39,142,115 (3.1) 88.9 63.8 84.7 $76.39 --- 2002 126,787 0.1 38,872,894 (0.7) 88.8 60.2 84.0 76.69 0.4 % 2003 130,482 2.9 40,482,041 4.1 89.6 60.5 85.0 82.48 7.5 2004 131,503 0.8 42,526,755 5.1 92.0 68.7 88.6 89.78 8.9 2005 133,186 1.3 43,362,698 2.0 91.8 72.0 89.2 103.12 14.9 2006 132,605 (0.4) 43,415,540 0.1 93.2 65.2 89.7 119.66 16.0 2007 132,947 0.3 43,867,192 1.0 94.0 64.5 90.4 132.09 10.4 Year-to-date through November: 2007 133,690 --- 40,550,109 --- 94.6 % 65.5 % 91.0 % $133.76 --- 2008 137,892 3.1 % 39,775,607 (1.9) 91.0 58.9 87.1 121.01 (9.5) % Average Annual Comp.