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Chris Sieroty

Vegas Strip forecast still mixed

29 October 2010

LAS VEGAS, Nevada -- After three turbulent years for hotels along the Strip, predictions or hopes for any recovery next year have been put on hold, as analysts with CB Richard Ellis' Global Gaming Group predicted earnings would remain mixed.

In a report released Wednesday, CB Richard Ellis analysts said they expected overall Strip resort revenues to range between a 1 percent decline to 4 percent growth next year due to the continued weak economy and other operational factors, including the Dec. 15 opening of the Cosmopolitan and its impact on the Strip.

"We are looking at a lot of factors contributing to another tough year in 2011," said Brent Pirosch, director of gaming consultant services for CB Richard Ellis' gaming group and co-author of the 100-page 2011 Las Vegas Strip Forecast & Investment Guide.

Weak home prices, rising airfares and a decline in the Strip's average customer base of visitors in their 40s and 50s with disposable income contributed to another lackluster year along the Strip.

Pirosch said a "tight supply" of domestic flights to Las Vegas, mixed with higher fares, will challenge hotel operators "as the budget end consumer gets squeezed out of the market."

Pirosch said fares had risen 9 percent this year. He said the Strip could benefit from international tourists as McCarran International Airport receives new direct international flights from France and Great Britain.

Continued high unemployment in Southern California, a key market for Las Vegas, was also expected to add to the Strip's financial woes.

"It's hard to get people from Los Angeles to spend money in Las Vegas if they are worried that they are not going to have a job next year," Pirosch said.

The Southern California market contributed 28 percent of the revenue generated by domestic visitors last year, according to the report. Second-place Arizona generated 9 percent of the domestic visitor base.

Jacob Oberman, director of gaming research and analysis for the gaming group and the report's co-author, said a key to any turnaround was the "need to have homes go up in value before (visitors) are willing to spend again."

Oberman said that before the housing collapse, 3 percent of all spending on the Strip was attributed to gains in home equity. Housing prices nationwide are not expected to increase dramatically next year, he said, making it unlikely consumers will be changing their spending habits.

If home prices rise by more than 5 percent next year, consumers may start to feel more confident about their ability to spend, Oberman told a group of bankers and casino operators during a luncheon Wednesday at McCormick & Schmick's in the Hughes Center.

A bright spot for high-end casinos on the Strip next year could come from baccarat, a game favored by Asian tourists who have disposable income due to the strength of the Chinese economy. The report forecasts a 10 percent to 20 percent increase in baccarat and minibaccarat income in 2011.

Oberman attributed the wide growth spread to the "volatility" of baccarat players, who have helped hotels earn $20 million a month to as much as $200 million.

The Strip was also expected to benefit from an increase in convention customers. The report forecasts convention and meeting demand to increase 15.5 percent next year, far ahead of the 3.1 percent increase in room nights available with the opening of the Cosmopolitan.

Total revenue for Strip casinos in business before the December opening of the Cosmopolitan, excluding baccarat, was predicted to decline 1.6 percent to 3.9 percent, while gaming revenues for the same period were expected to decline by 2.6 percent to 5.6 percent.

The forecast was the second released by CB Richard Ellis' Global Gaming Group. The report didn't address the locals market, but after their presentation both Pirosch and Oberman stressed hotels and casinos that cater to area residents are also expected to struggle next year.

"As the Strip goes, so goes the locals market," Oberman said. "The Strip is critical because every job has a multiplier effect on the locals market."