With little development over the past half-decade in Las Vegas, particularly on the Strip, area casinos and hotels have been able to capitalize on a rather imbalanced supply-demand equation. Resorts on the Strip benefitted from strong demand in a time of little new supply, pushing Revenue Per Available Room from $108 in 2008 to $148 in 2011, according to the Las Vegas Convention and Visitors Authority.
But nearly 10 years later, casino developers are putting the past behind them and there are plans underway for nearly $7 billion in casino-hotel development on the Strip. Naturally, as gambling becomes more prominent across the country, there are concerns over how demand in Las Vegas will be affected once these new properties begin welcoming guests.
Las Vegas Supply Trends
After the 2008 financial crash, several key development projects in Las Vegas were slowed or halted, and half-finished buildings littered the Strip. In the five years that followed, many of those projects were slowly completed. From 2008-2011, there were 100,000 rooms opened on the Las Vegas Strip, adding 13% to the destination’s room supply.
As developers of the already-funded projects topped off, financing dried up and new development was completely back-burnered. In 2011, the Las Vegas Strip reached a total of 90,000 rooms, and greater Las Vegas had 148,941 rooms. Today both numbers are relatively the same; there are fewer than 90,000 room available on the Strip and 149,351 rooms available citywide, according the LVCVA.New Las Vegas developments force current resorts to get their #revenuestrategy in order Click To Tweet
But blueprints are again starting to hit the planning commission’s desk. Spectrum Gaming Capital, which raises early-stage capital for developers, assembled a list of projects in planning stages and under development:
- Las Vegas Convention Center (2017-2024) – A $1.4-billion project that extends to the Strip and will include 600,000 square feet of exhibit hall, outdoor exhibition space and a complete renovation of the existing convention space.
- Resorts World Las Vegas (2020) – A $4-billion mega resort developed by Malaysia-based Genting, catering to an Asian demographic specifically from Singapore, Malaysia and the Philippines, will have 4,000 rooms.
- Wynn Paradise Park (2020) – A $1.6-billion project behind Wynn and Encore will include a 1,000-room hotel, casino and beach attraction.
- All Net Arena (2019) – A proposed $1.4-billion project adjacent to SLS, including a hotel, 300,000 sq. ft. of retail and restaurant space and a 22,000-seat, multi-purpose arena.
- Completion of the Fontainebleau, originally planned to have 4,000 rooms and multiple other amenities.
Las Vegas is Not Alone
The number of hotel rooms under construction across the U.S. has been rising dramatically for the past few years. According to STR, supply was up 30% throughout most of 2016, and in 2017 it’s averaging about 25% on top of that. There are about 190,000 hotel rooms being built in the U.S. STR says:
- In New York, room supply is still growing at about 5% year over year, and there are 98 hotels under construction.
- In Miami, supply growth concerns continue with 78 hotels in the pipeline.
- The Chicago market has 60 hotels with 9,685 rooms under contract in the pipeline. Of those, 19 hotels with 3,780 rooms are under construction.
And hotels can no longer ignore the impact of Airbnb as a source of supply.
“We see risks to oversupply of new hotel rooms that puts pressure to introduce room rate discounts and other promotions,” says CFRA analyst Ken Leon. “So, unless we see some reversal in demand trends, aggregate supply growth in 2017 should exceed demand for the first time since 2010.”
What Can Current Casinos Do In Preparation?
Duetto’s Associate Director of Casino Services Daniel Lofton remembers a similar situation when he managed revenue for both a casino and a hotel in the Houston area. In Houston, a new convention center brought more demand than hotels could handle, so more accommodations were built. Now the city is dealing with oversupply issues.
His advice for Las Vegas casino-hotels staring down new oncoming competition? Prepare to be more aggressive with your marketing plan without diluting rate.
“Prepare for new supply as best as you can,” Lofton says. “Get a little more active with promotions and offers.”
Examine the oncoming projects as close as possible to determine how opening their doors will affect you. Perform a SWOT analysis by identifying where they fit in the market and what business is potentially at risk, most importantly evaluating corporate and group contracts.
Are you the same level of product or can you begin skewing your offerings toward a different customer base? If you manage an off-Strip casino that caters to locals, chances are these new projects won’t be stealing much of your business.
If you’ll be going head-to-head with these new resorts, a more full-on analysis is required, including considering a deviated loyalty strategy to ensure keeping your best guests. Should a new hotel steal a piece of your business, you don’t want it to be your most profitable segment. Protect your corporate accounts, recurring groups and loyalty members by building value into their rates. Instead of dropping rate consider including buffet tickets, parking or other amenities. Rely on the relationships you’ve built.
Casinos have a leg up over hotels, Lofton said, because they have more ways to offer value without completely erasing profit.
The smartest Las Vegas casino-hotels will hold rate and closely monitor how demand responds to both the impact of the new property and your pricing.
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