Casino gaming industry growth in 2017 will be driven by the Las Vegas Strip and the peripheral Las Vegas market, a team of analysts at Well Fargo Securities predicted in a new report.
Emphasizing that both business and leisure travel to the city remain strong and that the ripple effects are strengthening the Southern Nevada economy, they predicted Las Vegas Strip and locals will outpace regional gaming over the coming year.
“We expect 4% Las Vegas revenue per available room (RevPAR) growth in 2017, on top of 6% average annual growth from 2013 to 2016 and tough comps from last year,” wrote Cameron McKnight, the report’s lead analyst, who also predicted a 10 percent overall RevPAR jump for the first quarter.
This expected growth will be buttressed by sound entertainment and non-gaming revenue performance along with continued growth in convention demand.
Not only is the number of meetings with more than 1,000 attendees growing, the report notes, growth in convention space supply in Vegas and around the country has tapered off, meaning that the region will likely continue to be a high-profile business travel destination.
“We note that hotels that have been built in the past two-years have nearly a quarter less meeting space than hotels built in 2000-2009,” McKnight wrote. “While convention now comprises 18% of room nights, the growing base of pre-booked convention business squeezes inventory and raises rates in other channels.”
Indeed, nearly 20 conferences projecting to draw 859,000 attendees are slated for the first three months of 2017 – projecting to 7 percent year-over-year jump in convention visitation.
A construction project at San Francisco’s Moscone Center could also mean a modest flight of convention business from the Bay Area to Vegas.
As far as casino play at Strip properties is concerned, McKnight’s team isn’t expecting much movement from 2016.
“We expect similar flattish to low-single-digit (gaming) growth in 2017,” he wrote. “There are a few reasons for the flattish growth: (1) regional gaming expansion, (2) younger customers are less gaming centric, and (3) China’s anti-corruption drive has impacted high end play.”
Rather, he reckons that revenue growth from here on out will be almost entirely concentrated in non-gaming channels.
“The growth in Las Vegas is being driven by convention and meetings and the “experience economy” – with restaurants and nightlife driving leisure spend. We expect gaming to be an increasingly smaller part of the story,” said McKnight.
The report notes that strong Strip performance will spill over into the locals market, adding that companies with a firmly established presence in the space – such as Red Rock Resorts – should outperform given new barriers to entry.
“The Las Vegas Locals market benefits directly and indirectly from an improving Strip. As Las Vegas Strip workers generate higher wages and tip revenue they often spend this directly in Locals casinos,” McKnight wrote, touting the combination of strong regional economic indicators and minimal new locals supply coming online.
Gaming growth projects to be more significant in the locals market as opposed to the Strip. Locals properties derive roughly 65 percent of their revenues from gaming as opposed to 30 percent at Strip properties.
As area residents get priced out of higher-end Strip destinations and opt for better comps and more affordable rooms, food and beverage, the locals segment will be the beneficiary and thus reap an expected 2 to 3 percent increase in gaming revenues for 2017.
