Las Vegas defies the odds once again and sets out on the slow road to recovery
It;s blisteringly hot in the summertime. It’s had its brushes with scandal and crime, and a great deal of its early growth can be attributed to nuclear testing. It’s noisy, occasionally garish, and manoeuvring its streets and resort corridors on Super Bowl Sunday is agony. Despite all that, Las Vegas remains one of the world’s premier vacation destinations; a city with its own ineffable personality. For most of the 2000s, it was also an investment hot spot. Las Vegas has invented and reinvented itself time and again, and there’s no reason to think it can’t reinvent its property market.
The Las Vegas metropolitan area also includes Henderson, Summerlin and Boulder City, many of those for sprawling new developments a few years back. There is no shortage of high-end hotels and condominiums clustered around Vegas’s famous Strip: The Palms, The Four Seasons, Bellagio, Wynn, Trump International Towers, MGM Grand and its niche Signature Towers, Turnberry Place and the ambitious CityCenter (which includes a Mandarin Oriental) are only a few of the branded residences and hotels operating on the formerly sleepy avenue.
The Sin City nickname seemed appropriate when business was booming, but a banking crash in 2008 and widespread cutbacks on corporate and personal spending have put Las Vegas at a disadvantage. “Las Vegas is definitely lagging behind as far as recovery goes,” explains John Stater, research director for Colliers International Las Vegas. “The main engine of our growth and our economy is obviously tourism. Essentially what we do is export a luxury product, but strangely enough people have to come here to for us to export it to them.”
Unlike Macau the city’s economic base is more diverse than many would believe. Construction and retailing are key industries, and finance, education and health services and the stalwart hospitality sector are all showing signs of modest growth. Some of that can be attributed to the rise of Las Vegas as a family town and burgeoning retirement community. “The value to retirees was the low cost of living. There’s a lot to do. There’s no snow, no earthquakes, tornadoes, hurricanes. If you’re an older person and you don’t want to have to deal with those things, you don’t have to,” Stater theorises. “Obviously retirement accounts took a hit when the stock market took a dive. But that’s back, so a lot of retirees are probably in a better position. If you look at health employment as a measure of how many retirees we’re getting, then yes, a lot are still moving to Las Vegas.”
Personal debt, however, is a more pressing issue. Though debt equals less visitorship, tourist numbers were up in 2010, as was gaming-related and convention revenue, despite Vegas not wooing the coveted ComicCon away from San Diego, as was widely rumoured. The city had a nice buffer from soaring revenues in the past, and the recessionary dips were marginal.
Economic recovery still at a shaky stage and jobs are still a concern, but a proposed high-speed rail link between Las Vegas and Victorville, California could be the beginning of a renaissance, and local economists are projecting improved employments rates within the year. Investment transactions were also on the rise in early-2011.
Las Vegas remains one of the United States’ fastest growing cities and is still a strong residential rental market, something that could bode well for investors. However distressed property and foreclosures have put first homebuyers and former homeowners alike in wait and see mode. With apartment and house rentals now competitively priced, premium properties are seeing high occupancy levels and slowing rising rental rates, and many residents are making moves from older to newer buildings.
So the $64,000 question is: Is Las Vegas still a strong investment market? “I think it probably is. Prices got overheated here, for residential and commercial property. Land prices went insane. We drove a lot of development into things that looked good on paper for which there was absolutely no demand,” Stater agrees, pointing out there may have been too much ambition vis-a-vis the luxury developments in the ’00s. “The prices have reset.” A recent auction helped to value Vegas land, something nearly impossible to do in the last few years because of the lack of land deals. Stater also breathes a sigh of relief at the return of more credible investors not looking for quick flips, many from Canada (where the dollar is strong against the greenback) and China.
That auction also showed institutional investment in Vegas was still active — and attractive. The proverbial 20 steps forward in the preceding decade kept the recession’s step back to just one. For the rest of the year Stater sees, “Better numbers on the Strip, and that’s sort of the catalyst for everything. My one worry is fuel costs. Obviously people need to come to us … and I’m hoping that’s not going to spike our nascent recovery. But I think for the most part Las Vegas has come through the storm. We’ve certainly hit bottom, so 2011 is going to look better than 2010. 2012 will look better than 2011.” Bet on it.