Sunday, May 24, 2009

Lost Vegas

by Bill McBride on 5/24/2009 01:13:00 PM

"These are times completely different than anything I have experienced in my lifetime. I didn't see this coming, and when it hit it hit virtually overnight."
Mayor Oscar Goodman told CNN, from John King: Luck running low in Las Vegas
According to the Las Vegas Convention and Visitors Authority, vistor volume is off 6.5% from last year, room rates are off 31.6%, and convention attendance is off 30%.

This puts RevPAR (Revenue per available room) off 36%!

Las Vegas Visitors Click on graph for larger image in new window.

This graph shows visitor volume and convention attendance since 1970. Vistors are back to 1998 levels, however the number of rooms has increased 28.5% since then - from 109,365 rooms in 1998 to 140,529 in 2008. Ouch.

Note: 2009 is estimated based on data through March.

In addition to building too many hotel rooms, there is an oversupply of office and retail space too. From Voit Real Estate Services on Offices:
The Las Vegas office market continued to report increased vacancies, weaker demand and reduced pricing through the first quarter of 2009. An imbalance in the commercial office sector has clearly emerged as selected portions of the market reported vacancies well beyond historical high points.
...
During the quarter, new supply entered the market as existing product reported a net loss in occupancies. The valley-wide average vacancy rate reached 19.6 percent, which represented a 2.0-point increase from the preceding quarter (Q4 2008). Compared to the prior year (Q1 2008), vacancies were up 4.9 points from 14.7 percent. As a point of reference, average vacancies bottomed out in the third quarter of 2005 at 8.1 percent.
emphasis added
And Voit on retail:
By the close of the first quarter of 2009, the Las Vegas retail market continued to be impacted by a softening economic climate, reduced consumer spending and a number of corporate restructurings for retailers. Overall vacancies climbed to 9.3 percent, which represented a 1.9-point rise from the preceding quarter. Compared to the same quarter of the prior year, vacancies were up 3.7 points from 5.6 percent.

Market expansions continued to despite the downturn as a number of retail centers were well under construction by late-2008. Approximately 812,900 square feet completed construction, bringing total market inventory to 51.3 million square feet. As of March 31, 2009, a total of 2.5 million square feet was in some form of construction. It is worth noting a couple of major retail projects have stalled construction (1.7 million square feet) ...

The market reported negative demand for the second consecutive quarter with 221,000 square feet of negative net absorption.
And, of course, Las Vegas had a huge housing bubble too:

Las Vegas House PricesThis graph shows the Case-Shiller house price index for Las Vegas. This is one of most exaggerated bubbles in the U.S.

Prices almost doubled from January 2003 to the peak in early 2006 - and now are off almost 50% from the peak!

And don't forget the condos ...

ManhattanWest Las Vegas This photo (credit: Anthony May 4, 2009) shows the only activity at ManhattanWest condo project in Vegas - a security guard relaxing in the sun.

And ManhattanWest isn't the only halted project in Las Vegas (From the Las Vegas Review-Journalin March: ManhattanWest latest casualty of crisis):
Last year, Mira Villa condos and Vantage Lofts stopped construction and went into bankruptcy. Sullivan Square had barely begun excavation before the project was canceled. Spanish View Towers was the first high-rise project to stop construction after partially building an underground parking garage.

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