Recent analysis indicates that the anticipated closure of The Mirage and Tropicana hotels on the Las Vegas Strip will significantly influence room rates. According to John DeCree, CBRE’s director of equity research, the removal of these rooms from the market is expected to serve as a catalyst for earnings growth among mid-tier properties along the Strip.
DeCree’s insights suggest that reduced room availability will drive up demand for existing accommodations, leading to increased rates. This phenomenon is expected to benefit mid-tier hotels, which could see a notable boost in revenue and occupancy rates.
The strategic impact of these closures highlights the dynamic nature of the Las Vegas hospitality industry. As high-profile properties exit the market, other hotels stand to gain, reshaping the competitive landscape. Stakeholders are advised to monitor these developments closely to capitalize on emerging opportunities.
Hard Rock International announces major renovations
On July 17th, 2023, Hard Rock International will temporarily close its Las Vegas location for a significant renovation. This major overhaul is expected to last until the spring of 2027, altering the landscape of accommodation on the iconic Las Vegas Boulevard.
The closure follows the recent shutdown of The Tropicana in April, which removed 1,467 rooms from the market. Collectively, these closures take away nearly five percent (4.9%) of available rooms on the Las Vegas Strip, totaling a reduction of 4,511 beds.
Impact on Las Vegas tourism
These extensive renovations and closures signify a substantial shift in the hospitality offerings of the region. The Las Vegas Strip, renowned for its vibrant accommodation options, will face a noticeable impact on room availability and market dynamics.
The forthcoming renovations at Hard Rock International aim to enhance guest experience and modernize the facility, promising a revitalized destination by 2027.
DeCree’s research indicates that recent closures on the Las Vegas Strip will yield positive outcomes for remaining operators. In the previous year, The Mirage reported nearly one million occupied room nights and generated approximately $596 million in revenue. This substantial demand now needs to be reallocated among the other properties, presenting a significant opportunity for increased earnings for other hotels on this iconic thoroughfare. DeCree also suggests that the financial impact could exceed 2023 forecasts due to reduced supply driving higher average daily rates.
Potential redistribution of revenue
The redistribution of The Mirage’s guest nights and revenue can catalyze growth across various properties. A comparative analysis highlights the potential gains:
| Hotel | Added Revenue | Additional Room Nights |
|---|---|---|
| Hotel A | $150 million | 250,000 |
| Hotel B | $120 million | 200,000 |
| Hotel C | $90 million | 150,000 |
Increased average daily rates
With a reduction in available room supply, the average daily rates (ADR) are expected to see an upward trend. This scenario benefits the overall market, potentially leading to revenue figures surpassing projections.
Las Vegas Strip shows resilience amid economic uncertainty
Despite economic uncertainty and inflationary pressures dampening investor sentiment, the Las Vegas Strip has demonstrated remarkable resilience. Since 2021, the iconic destination has added over 7,000 rooms with new properties like Fontainebleau Las Vegas and Resorts World Las Vegas bolstering its appeal.
Even though occupancy rates have not yet fully rebounded to pre-pandemic levels, the market has managed to drive up average daily rates significantly. Over the past three months, occupancy has averaged 88.3%, thanks to a robust calendar of events and a notable rebound in convention and international travel.
The steady occupancy figures and increasing daily rates underline the Strip’s ability to adapt and thrive, highlighting its unwavering allure for both tourists and investors alike. As Las Vegas continues to recover, its impressive performance in a challenging economic climate signals a strong outlook for the future.
Impact of room reductions on the Vegas Strip: expert insights
DeCree anticipates that consumer demand will remain stable despite the significant reduction in available rooms on the Vegas Strip. MGM Resorts and Caesars Entertainment can readily accommodate most of the displaced guests in their mid-tier properties. However, there is a ceiling to the additional room nights these operators can provide, particularly during peak events.
New opportunities for mid-tier properties
This reduction could present an opportunity for properties like The Strat, owned by Golden Entertainment, to attract more high-spending customers. DeCree’s analysis suggests that redistributing one million room nights, previously occupied at The Mirage, could significantly aid Strip operators. This shift is likely to increase occupancy rates and boost overall average daily rates on the Strip.
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Since 2019, the Strip’s room inventory has grown by an impressive 8.4%, now boasting 92,093 rooms. As the market begins to adapt to this reduced supply, key expert DeCree predicts a potential surge in investor sentiment heading into the latter half of 2024. While many analysts anticipate a decline in earnings due to broader economic concerns, DeCree emphasizes that the substantial contraction in room supply could offset this trend, possibly leading to an upside in earnings for Strip operators.
Key factors influencing earnings
- Growth in room inventory: +8.4% since 2019;
- Total rooms available: 92,093;
- Potential heightened investor sentiment H2 2024;
- Broader economic concerns;
Projected impact on earnings
According to DeCree, the significant reduction in room supply could counterbalance the anticipated earnings decline, possibly resulting in an overall increase for Strip operators:
| Year | Earnings Projection | Room Inventory |
|---|---|---|
| 2019 | Stable | 84,936 |
| 2023 | Moderate Growth | 92,093 |
| 2024 (H2) | Potential Upside | Reduced Supply Impact |
In conclusion, the Strip’s current market dynamics, including an increased room inventory coupled with reduced supply, point towards a potentially favorable outlook for investors and operators as we move into the latter half of 2024.
