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Analysts issue upbeat growth forecast for Strip in 2013

16 November 2012

LAS VEGAS -- The most challenging period for Las Vegas and its largest industry, gaming and hospitality, appears to be in the rearview mirror, according to a report released Thursday.

According to its report, the Newmark Grubb Knight Frank Global Gaming Group expects total revenue generated by properties on the Strip to increase between 1.5 percent and 5.3 percent in 2013, assuming a negligible increase in the supply of hotel rooms.

"Improvements in U.S. household net worth, an important leading indicator for Strip revenue performance, should provide baseline support for 2013," said Brent Pirosch, director of Gaming Consulting for NGKF's Global Gaming Group.

Pirosch noted that softness in the U.S. housing market, along with "a fragile recovery and ongoing economic uncertainty in the U.S. and abroad will keep 2013 revenue growth on the Las Vegas Strip at modest levels."

In a 70-page report, the analysts said the Strip was in a good spot in 2012, with revenue growth at the upper end of their forecast.

"We identified total revenues growth of 1.9 percent to 5.7 percent, and revenue on the Strip has grown 4 percent," said Pirosch, co-author of the report.

But the report cautions that a downturn in the housing market of 5 percent to 10 percent and a 10 percent to 20 percent drop in the stock market, could force revenues down by 2 percent to 8 percent.

Some of the keys in 2013 for properties on the Strip were gaming revenue, excluding baccarat, is expected to increase 1.9 percent to 4.9 percent. As a result of stronger pricing dynamic, hotel rates and nongaming revenue are expected to grow at a much faster rate than gaming at between 2.3 percent and 5.5 percent.

Pirosch expected "slowing wealth metrics" in China to affect the baccarat market. The business, mostly at luxury Strip resorts is projected to vary between a 5 percent decline and 5 percent growth next year.

The international commercial real estate firm's Las Vegas-based Global Gaming Group's "2013 Las Vegas Strip Forecast & Investment Guide" predicts demand for rooms associated with conventions and meetings potentially may slow down. Despite their caution, room nights are expected to increase 1 percent to 4 percent.

Convention and meeting pricing is also expected to increase 3 percent to 7 percent.

Se Oei, director of Gaming Research and Analysis for NGKF's Global Gaming Group and co-author of the report, said development strategies on the Strip continue to focus on "renovating and invigorating existing spaces."

He said new properties on the Strip remain a challenge to finance and a long development cycle puts off opening for several years. Oei said gaming company budgets are also "constrained by high debt loads," so operators have been evaluating their existing operations for new ways to exploit their space.

Among the upgrades to Strip properties are Caesars Entertainment Corp.'s $180 million renovation of Bill's Gamblin' Hall & Saloon; Bellagio's $40 million renovation of its Spa tower; and the Hard Rock's $20 million to $30 million in upgrades to its restaurants and clubs.

"Development trends are clearly focused on maintaining or increasing market share of customer spend through nongaming outlets over a 24-hour cycle," Oei said.