Las Vegas Rates Rolling High Despite New Supply

Despite a combination of midprice property development and a continued influx of the mega casino and hotel complexes, room rates in Las Vegas increased sharply in 2006, commensurate with strong demand. However, even with occupancies extremely high, enough competition exists for corporate meetings and business transient travelers that buyers may find the city surprisingly negotiable.

At the end of 2006, there were 131,809 hotel rooms in Las Vegas, a number that is forecast to be 137,878 by the end of 2007 and 170,637 by 2010. These numbers will be bolstered in particular by the construction of two projects: CityCenter, with 6,343 rooms in 2009, and Echelon Place, with 5,300 rooms in 2010.

Las Vegas Convention and Visitors Authority director of internal marketing and research Kevin Bagger said the target number for visitors in all categories, from leisure to corporate, is 39.3 million for 2007. "Average daily rate was $103.42 in 2005 and, when the final figure for 2006 comes in, is expected to be around $120," Bagger said.

Hendersonville, Tenn.-based Smith Travel Research tracks what senior vice president of operations Bobby Bowers called a "thin sample of Las Vegas's hotel rooms, only 14 percent," but said it was clear the local market was strengthening.

"While our sample is small, it shows that the Las Vegas hotel market is a strong and unique one that will continue to grow in 2007," according to Bowers. "Last year, absolute occupancy was very high, despite being down in 2006, but just by 0.7 percent. But guest room revenue for 2006 was up 4.2 percent, totaling $3.8 billion, while room supply growth was up 1.4 percent last year, which is more than twice the U.S. average."

Bowers said revenue per available room for the STR sample of Las Vegas hotels was $77.71 in 2006, up from $75.63 in 2005.

"As always, there is a lot of hotel market activity in Las Vegas, a lot of new hotel development of casino and noncasino hotels in the city and outside it, including of midprice, nongaming properties, such as Hilton Garden Inn," said Bruce Baltin, senior vice president of PKF Consulting in Los Angeles.

Trends and forecasts, he predicted, will continue to be for higher rates and higher occupancies based on strong demand, with more competition for mega hotels from noncasino hotels.

"Overall, the Las Vegas hotel market continues to be strong, with the famous mega hotels adding more rooms—such as Palazzo, with its new 3,025-room tower by this fall—and more meeting and convention space, and with the noncasino hotels making inroads into the major hotels' corporate meetings market," he continued.

With smaller, nongaming hotels going after corporate business more aggressively, Baltin said, corporate planners wind up having some negotiating leverage with them.

"There is the ability to negotiate a rate, especially as the nongaming hotels, which are notched under the big hotels, continue to develop, but the mega hotels will still have the ability to set rates in the city," he said.

However, as the big hotels get even bigger, that crowded atmosphere can become awkward for some corporate groups, he said. "Sure, it's a fun atmosphere, but it isn't the best setting in which to conduct business," Baltin said.

While Las Vegas is well-known for hosting massive association citywides, some with nearly 100,000 attendees, said Las Vegas Convention and Visitors Authority vice president of sales Nancy Murphy, 80 percent of all Las Vegas meetings are for fewer than 500 people.

"At this time, 15 percent of our 24,000 annual meetings are corporate meetings. The LVCVA has been challenged to raise that to 20 percent by 2009, reachable with new gaming and nongaming projects adding 30,000 new hotel rooms and four million square feet of meeting space by 2010, and with corporate demand continuing to grow," she said, noting that insurance, financial services and pharmaceutical groups have become growing markets in the last five years.

"Our hotel product now has the variety that appeals to the corporate meeting planner, from Ritz-Carlton and Marriott to Four Seasons and Loews," Murphy said. "Loews, for example, has a 493-room, non-casino hotel located at Lake Las Vegas, a manmade lake 17 miles from the Las Vegas Strip. Another smaller property is the 255-room, $85-million Platinum Hotel that opened in 2006, about one-half mile east of the Strip. Both of these nongaming hotels, like a lot of other ones here, are very popular for smaller corporate meetings."

"These and other smaller hotels, such as condo hotels—a mixed-use property of private residences and hotel rooms that has proven to be a very successful idea in Las Vegas—have come online over the last five years and are ideal for corporate meetings," Murphy said. "Hilton Garden Inn hotels, low-rise and nongaming, and with very limited meeting space, do very well with individual business travelers."

"Trump Tower, a 64-story hotel and condo, is to be completed in late 2006. It will have corporate suites and is expected to be a favorite with corporate groups, such as boards of directors, that want to trade on the Trump name," Murphy said.

Las Vegas expects 43 million visitors annually by 2009, Murphy said. "For every 1,000 rooms that are added, we need to attract 200,000 more visitors annually," she acknowledged. She added hotel occupancy percentages are running in the 90s.

"The destination is still a value and offers flexibility for corporate planners since each hotel has its own business model," Murphy said.

PricewaterhouseCoopers director of research and analysis Mary Lynn Palenik of Las Vegas said, "The Las Vegas hotel market continues to grow, despite slight declines in room inventory, with a 2006 midweek occupancy of 88.5 percent, up 1.3 percent over 2005. Changes in room inventory over the past five years can be attributed to various mergers, acquisitions, expansions and closings, such as Castaways in 2006, in preparation for new development."

Meanwhile, Warren Marr, director of hospitality and leisure of PricewaterhouseCoopers in Philadelphia, anticipated that the Las Vegas hotel market would be as strong this year as it was in 2006. "A real strength of the Las Vegas economy is the ability of off-Strip hotels, from a pricing perspective, to offer a lower rate than many major cities and many metropolitan areas," Marr said.

"Another strength of the city's hotel market is the way it can shift direction. When there is a lag in casino demand, for example, the market will go after other segments, such as more meetings," according to Marr. "As long as demand is there and is being created, the Las Vegas hotel market will be as strong as ever."