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June 17, 2019

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Report: CityCenter may drive Vegas room discounting trend

Aria Opening

Tiffany Brown

CityCenter chefs, from left, Jean-Philippe Maury, Todd English, Shawn McClain, Masayoshi Takayama, Sirio Maccioni, Jean-Georges Vongerichten, Julian Serrano and Michael Mina pose for pictures at the opening of Aria at CityCenter in Las Vegas on Wednesday, Dec. 16, 2009.

Aria Opening

CityCenter President and CEO, Bobby Baldwin, bottom center, speaks during the opening of Aria at CityCenter in Las Vegas on Wednesday, Dec. 16, 2009. Launch slideshow »

Aria Preview

Employees ready the bar at the Skybox Bar at Aria, the centerpiece of the $8.5 billion CityCenter project, Monday, December 14, 2009. Launch slideshow »

CityCenter won’t be a panacea for the Las Vegas economy, which will actually be in worse shape next year because of nearly 8,000 new hotel rooms and condominiums on the Strip, according to a report released today by researchers at UNLV.

The Center for Business and Economic Research in its Southern Nevada economic outlook for 2010 dismissed suggestions by other local analysts that CityCenter’s opening will boost the economy. That has been the history of resort openings, with the excitement and an increase in room demand, but that is no longer the case, the report said.

“The U.S. economy hasn’t recovered enough for people to come here and blow huge budgets on travel,” said Mary Riddel, a UNLV economist and the center's interim director. “Rather than CityCenter boosting the local economy … we think it will be at the expense of other properties. This is increased competition and when competition increases, you lower your prices.”

The old rules no longer apply in assessing the opening of CityCenter, said Riddel, who helped prepare a report unveiled at a conference at the M Resort.

The occupancy rate will be in the low 80s percentage-wise, about the same as 2009, Riddel said. An occupancy rate of 85 percent is considered break even, putting more stress on hotels, she said.

“Discretionary income has fallen all over the United States, and we are in a global recession,” Riddel said. “Even if they are visiting Las Vegas, many are constrained by not having enough money. We are not saying CityCenter itself won’t do well. It will do well, but it will come at the expense of other properties.”

Not everyone agrees.

Brian Gordon, a principal at the consulting firm Applied Analysis, said history has proved that opening resorts spurs demand. CityCenter’s $50 million advertising campaign should do that as well.

“CityCenter is a once-in-a-lifetime project,” Gordon said. “There is no other CityCenter on the Strip. It will drive the market forward and increase the overall exposure in the coming year. That exposure will pay dividends for Las Vegas in general.”

Riddel says Las Vegas’ economy will be hurt by airlines restricting the number of seats to the city and selling the remaining ones at higher prices. That will eat up the discretionary income that visitors have to spend, she said.

Despite CityCenter’s opening, the UNLV report predicts gaming revenue will decline 3.8 percent in 2010 before increasing 1.2 percent in 2011 when the region will start to see a modest economic recovery. That is when increases will occur in jobs, personal income, visitor volume, gaming revenue and home permits — all of which will fall short of 2008 levels, Riddel said.

Gaming revenue will decline despite an expected rise in visitor volume by 2.5 percent in 2010, Riddel said. The gaming revenue per person is at the low levels seen during the “family phase” of Las Vegas in the mid to late 1990s, the report said.

When the city adds 8,000 new hotel rooms and condominiums, that creates a more competitive environment, Riddel said. Deep discounts over the past year have lowered the quality visitors by attracting budget-minded travelers who will spend less on retail, gamble less and spend less time in Las Vegas.

"Last year we heard reports about people dragging up a cooler to their room at the Bellagio," Riddel said. “If this trend continues, we are attracting goldfish; not whales. These are not big spenders. … That doesn’t help us, especially in terms of our state gaming revenue and taxable sales.

Despite the spending of federal stimulus money in 2010 and improved conditions nationwide, Southern Nevada’s economy will lag the rest of the country and not start to recover until the end of 2010, Riddel said.

The recovery, however, doesn’t mean a return of earlier times, Riddel said. Job losses and declines in personal income will continue into 2010 before modest increases occur by the end of the year. Permits for new homes will remain weak, she said.

“So far, a lot of our job losses have been in hospitality, hotel and leisure and construction,” Riddel said. “In the last couple of months, we have seen job losses spread to other industries in particular the retail and wholesale trade, and we expect that to continue … We are going to start adding a few jobs (by the end of 2010), but it is not going to be a surge.”

The jobless rate has had an effect on Las Vegas’ population, which fell by about 15,000 in 2009 and will increase by about 7,000 in 2010, according to the center’s estimates. That is below the natural rate of population growth when factoring in births.

“This is something new for Las Vegas,” Riddel said. “The reason is we continue to shed jobs and at the same time people are likely to leave an area to seek work in a city with a lower unemployment rate.”

The report by the Center for Business and Economic Research mirrors an economic analysis released this week by the Brookings Mountain West initiative, a partnership between the Brookings Institution and UNLV.

That report singled out Las Vegas, Phoenix and Boise as the most troubled metropolitan areas for the Intermountain West.

The report looks at such factors as unemployment, home prices, and foreclosure rates.

“These ... large metros in the region remain three of the most severely distressed metros in the nation, and they inordinately define the region’s recession landscape,” the report said. “Each of these metros has been devastated by the bursting of the housing bubble inflated by years of easy credit and proliferation of exotic and unusually subprime mortgages.”

The report predicts the number of Clark County jobs will drop 5.2 percent in 2010 before increasing 0.5 percent in 2011.

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