The Changing Nature of Las Vegas Tourism

A monthly report produced for Commerce Real Estate Solutions by Stephen P. A. Brown, PhD, Center for Business & Economic Research University of Nevada, Las Vegas Issue 16 April 2012 The Changing Nature of Las Vegas Tourism To receive this newsletter by e-mail, please subscribe at www.comre.com/subscribe The Southern Nevada economy is largely defined by tourism. A region s economic base is made up of the industries that produce the goods and services the region provides to the rest of the world. According to data from the U.S. Bureau of Labor Statistics, the Clark County economic base comprises leisure and hospitality and air and ground transportation services, the latter undoubtedly the result of tourism. With strong population growth, the construction and real estate industry also stood out as an important aspect of the Southern Nevada economy until about 2007. Despite its strong contributions, however, construction and real estate cannot be considered part of a region s economic base. Its output is not exported to the rest of the world. What drives construction and real estate is the region s growth which is mostly dependent on the strength of the industries in its economic base. Tourism and Gaming From 1990 through 2007, the growth of Clark County gross gaming revenue outpaced U.S. economic activity. Clark County gaming revenue dropped more sharply during the U.S. recession than overall U.S. economic activity, as was the case in previous recessions. Given the depth of the U.S. recession, it s not surprising that gaming revenue has been a little slow to rise. Employment in Las Vegas leisure and hospitality outpaced overall U.S. employment from 1990 through 2007. Since then, employment in Las Vegas leisure and hospitality has basically held its own with overall national employment. So employment in the industry has been more stable than gaming revenue. We see a similar picture when comparing Las Vegas leisure and hospitality employment with overall California employment. The relative stability of the leisure and hospitality industry is not surprising. Whatever sectors are doing well in the U.S. economy generate the income necessary to support tourism, gaming and hospitality. As one of the premiere tourist destinations in the world, Las Vegas can always share in others fortunes. Las Vegas Visitor Volume Rising As of March, Clark County saw 23 consecutive months of increased tourism. In 2011, Clark County visitor volume was 3.6 percent higher than in 2010. For the first three months of 2012, Clark County visitor volume averaged 3.2 percent higher than the same time period in 2011. For Clark County visitor volume to reach the high water mark of 43,915,649 set in 2007, we need to see a 4.2 percent increase over 2011. That probably will not happen in 2012. This report is commissioned by Commerce Real Estate Solutions info@comre.com 801-322-2000

nevada s Economy April 2012 The visitor picture is stronger for Las Vegas. Las Vegas visitor volume is approaching the levels seen in 2007 before the U.S. recession. In 2011, Las Vegas visitor volume was 4.3 percent higher than in 2010. For the first three months of 2012, Las Vegas visitor volume averaged 3.6 percent higher than for the same period in 2011. For Las Vegas visitor volume to reach the high water mark of 39,196,761 set in 2007, we need to see only a 0.7 percent increase over 2011. That is quite likely to happen in 2012. Las Vegas tourism is changing as it recovers. Visitors are coming from farther away, staying longer and paying higher hotel rates than in recent years. Visitors also seem to be gambling less and purchasing less from the retail shops in the casinos. Visitor Composition Has Changed Visitors came from farther away in 2011 than in previous years. A higher percentage of Las Vegas visitors are arriving by air. Passenger volume at Las Vegas McCarran airport, including those passing through, was 4.4 percent higher in 2011 than in 2010. During the first three months of 2012, passenger volume was 3.0 percent higher than in the first three months of 2011. The slow economic recovery in the West has been evident in the changing composition of visitors. The number of visitors arriving by automobile declined by 0.5 percent in 2011. The number of people arriving at the California-Nevada border was up by only 0.3 percent. In early 2012, however, we saw resurgence in automobile traffic, despite higher gasoline prices. The number of visitors arriving by automobile during the first three months of the year was 0.5 percent higher than for the same period in 2011. The number arriving at the California-Nevada border was up by 7.5 percent. One consequence of more visitors arriving by air is increased taxicab ridership. During 2011, Las Vegas taxi ridership was 7.3 percent higher than in 2010 and 1.6 percent higher than in 2007. During the first three months of 2012, taxicab ridership was 3.9 percent higher than in the same period in 2011. Staying Longer; Paying Higher Room Rates During 2011, the average visitor to Las Vegas stayed longer than in 2010. Room nights occupied rose by 5.3 percent. That figure exceeds the gain in visitor volume by 1.0 percentage points. During the first three months of 2012, however, visitor volume was 3.6 percent higher than during the same period in 2011, but room nights were only 3.0 percent higher. Room nights occupied were 5.4 percent higher during the first three months of 2012 than during the same period in 2007 before the recession. Visitors are also paying higher room rates than they did in 2010. During 2011, room rates were 10.7 percent higher than during the same period in 2010. During the first three months of 2012, room rates were 3.6 percent higher than during the same period in 2011. Despite the gains, room rates during the first three months of 2012 were 16.8 percent below the rates seen in the first three months of 2007. Gambling Less During the recovery, gaming revenue has risen by less than visitor volume, but that is changing. During 2011, Clark County gross gaming revenue was 3.5 percent higher in 2010 0.1 percentage points less than the gain in Clark County visitor volume. During the first three months of 2012, Clark County gross gaming revenue was 4.4 percent higher than in the first three months of 2012, while visitor volume was only 2.1 percent higher. Despite the recent gains, Clark County Commerce Real Estate Solutions comre.com

The Changing Nature of Las Vegas Tourism gross gaming revenue was 10.5 percent lower during the first three months of 2012 than in the same period in 2007. Focusing on the Las Vegas Strip yields a more favorable picture. During 2011, gross gaming revenue at establishments along the Las Vegas Strip was 5.1 percent higher than in 2010 0.8 percentage points higher than the gain in Las Vegas visitor volume. Similarly, gaming revenue along the Strip was 5.2 percent higher in the first three months of 2012 than during the same period in 2011 1.6 percentage points higher than the gain in Las Vegas visitor volume. Nonetheless, gross gaming revenue along the Las Vegas Strip was 7.0 percent lower during the first three months of 2012 than during the same period in 2007. Nevada Economic Conditions U.S. economic growth showed a substantial slowing in first quarter 2012. Consumer spending and inventory investment remained fairly strong, but government spending, business fixed investment and net exports made negative contributions. Nevada s tourism and gaming industries continue to drive the state s economic recovery. Nevada s construction sector remains at relatively low levels. Rising employment and reduced labor force participation meant a lower statewide unemployment rate in March. U.S. Economy Shows Slowing Growth U.S. real GDP grew at an annualized rate of 2.2 percent during first quarter 2012, representing a substantial slowing from the fourth-quarter rate of 3.0 percent. Consumer spending and inventory investment drove most of the gains. Residential investment also continued to show improvement. Government spending, business fixed investment and net exports made negative contributions. U.S. nonfarm employment rose by only 115,000 jobs in April, marking the weakest gain since August 2011. The unemployment rate fell to 8.1 percent in April, as labor force participation dropped. Consumer sentiment increased slightly in April, but consumer confidence slipped slightly. Sales of new and existing homes slipped in March, but were 7.5 percent The Slow U.S. Recovery Seen in Las Vegas Tourism In short, the tourist-dependent Las Vegas economy continues to see the effects of a slow U.S. economic recovery. In first quarter 2012, U.S. gross domestic product (GDP) remained 5.4 percent below potential, and in April 2012, U.S. employment was 3.6 percent below the high-water mark set in January 2008. Given the slow U.S. recovery, the recent gains in Southern Nevada tourism and gaming have been impressive. For Southern Nevadans, one important question is how do the gains in tourism and gaming translate into employment? Although we are seeing gains, employment in the Las Vegas leisure and hospitality sector has not quite reached the levels established in 2007. Continued gains in tourism and gaming should mean increased employment in the leisure and hospitality industry. and 5.2 percent higher than a year earlier, respectively. Personal consumption expenditures increased for the ninth straight month in March, and retail sales rose in March for the tenth straight month. The Kansas City Financial Stress Index remained below its long-run average in April, which suggests financial headwinds are not impeding economic growth. The quantity of commercial paper outstanding remains low, which means that relatively little external financing is being used to support business investment, Table 1. Story continues after graphs Issue 16 Copyright 2012 - All Rights Reserved

nevada s Economy April 2012 Table 1 Table 2 Table 3 U.S. Date Units Current Previous Change Year Ago Change Employment 2012M04 million, SA 132.989 132.874 0.1% 131.173 1.4% Unemployment Rate 2012M04 %, SA 8.1 8.2-0.1% 9.0-0.9% Consumer Price Index 2012M03 82-84=100, NSA 229.1 228.4 0.3% 223.2 2.6% Core CPI 2012M03 82-84=100, NSA 228.4 227.9 0.2% 223.4 2.3% Employment Cost Index 2012Q1 89.06=100, SA 115.3 114.7 0.5% 113.2 1.9% Productivity Index 2012Q1 2005=100, SA 110.6 110.7-0.2% 110.1 0.5% Retail Sales 2012M03 $billion, SA 408.0 404.8 0.8% 382.1 6.8% Auto and Truck Sales 2012M03 million, SA 14.31 15.04-4.8% 13.02 9.9% Housing Starts 2012M03 million, SA 0.654 0.694-5.8% 0.593 10.3% Real GDP*** 2012Q1 2000$billion, SA 13,502.4 13,429.0 2.2% 13,227.9 2.1% U.S. Dollar 2012M04 97.01=100 99.026 98.727 0.3% 95.361 3.8% Trade Balance 2012M03 $billion, SA -51.825-45.416 14.1% -46.059 12.5% S and P 500 2012M04 monthly close 1,397.91 1,408.47-0.7% 1,363.61 2.5% Real Short-term Rates* 2012M04 %, NSA -3.12-3.82 0.7% -4.54 1.4% Treasury Yield Spread 2012M04 %, NSA 1.97 2.09-0.1% 3.40-1.4% Nevada Date Units Current Previous Change Year Ago Change Employment 2012M03 000 employees 1,122.6 1,113.9 0.8% 1,113.8 0.8% Unemployment Rate* 2012M03 %, NSA 11.9 12.2-0.3% 13.5-1.6% Taxable Sales 2012M02 $billion 3.223 3.154 2.2% 2.924 10.2% Gaming Revenue 2012M03 $million 854.59 932.17-8.3% 958.73-10.9% Passengers 2012M03 passengers 4.000 3.418 17.0% 3.990 0.2% Gasoline Sales 2012M02 million gallons 83.72 85.12-1.6% 79.63 5.1% Visitor Volume 2012M03 million visitors 4.377 3.821 14.6% 4.278 2.3% Clark County Date Units Current Previous Change Year Ago Change Employment 2012M03 000 employees 806.1 799.8 0.8% 803.4 0.3% Unemployment Rate* 2012M03 %, NSA 12.1 12.2-0.1% 13.7-1.6% Taxable Sales 2012M02 $billion 2.416 2.332 3.6% 2.174 11.1% Gaming Revenue 2012M03 $million 733.49 812.14-9.7% 835.68-12.2% Residential Permits 2012M03 units permitted 841 460 82.8% 450 86.9% Commercial Permits 2012M03 permits 23 18 27.8% 32-28.1% Passengers 2012M03 million persons 3.655 3.108 17.6% 3.565 2.5% Gasoline Sales 2012M02 million gallons 57.89 59.50-2.7% 55.28 4.7% Visitor Volume 2012M03 million visitors 3.836 3.326 15.3% 3.722 3.1% Table 4 Washoe County Date Units Current Previous Change Year Ago Change Employment** 2012M03 000 employees 186.9 185.9 0.5% 186.0 0.5% Unemployment Rate* 2012M03 %, NSA 12.0 12.2-0.2% 13.5-1.5% Taxable Sales 2012M02 $billion 0.398 0.397 0.3% 0.359 10.7% Gaming Revenue 2012M03 $million 61.43 60.26 1.9% 61.15 0.4% Residential Permits 2012M03 units permitted 42 42 0.0% 57-26.3% Commercial Permits 2012M03 permits 9 4 125.0% 5 80.0% Passengers 2012M03 million persons 0.293 0.265 10.5% 0.349-16.0% Gasoline Sales 2012M02 million gallons 13.10 13.02 0.7% 12.41 5.6% Visitor Volume 2012M03 million visitors 0.333 0.314 6.1% 0.352-5.4% *Change in percentage rate **Reflects the Reno-Sparks MSA which includes Washoe and Storey Counties ***Recent growth is an annualized rate Sources: Nevada Department of Taxation; Nevada Department of Employment, Training, and Rehabilitation; UNR Bureau of Business and Economic Research; UNLV Center for Business and Economic Research; McCarran International Airport; Reno/Tahoe International Airport; Las Vegas Convention and Visitors Authority; Reno-Sparks Convention and Visitors Authority; U.S. Department of Commerce; U.S. Bureau of Labor Statistics; U.S. Census Bureau; U.S. Federal Reserve Bank. Note: NSA = Not Seasonally Adjusted, SA = Seasonally Adjusted Commerce Real Estate Solutions comre.com

Nevada Economic Conditions Nevada Economy Continues to Show Uneven Growth The Nevada economy continues to show uneven signs of growth. Visitor volume was 2.3 percent higher in March than a year earlier. Gaming revenue was 10.9 percent lower in March than a year earlier. Declines were seen in slot machine play and most table games. Taxable sales were 10.2 percent higher in February than a year earlier. Statewide employment increased by 8,700 jobs (0.8 percent) in March. The Nevada unemployment rate decreased from 12.2 percent in February to 11.9 percent in March as the result of employment gains and reduced labor force participation, Table 2. Clark County s Economy Also Showing Uneven Growth Clark County s economy also shows uneven signs of growth. Compared to a year earlier, visitor volume was up by 3.1 percent in March. Gaming revenue was 12.2 percent lower in March than a year earlier. Declines were seen in slot machine play and most table games. Taxable sales for February were 11.1 percent above those for a year earlier. Residential construction permits rose sharply from February to March, and commercial construction permits increased from a low level. The region s employment rose by 6,300 jobs (0.8 percent) from February to March. The Las Vegas unemployment rate fell slightly, from 12.2 percent in February to 12.1 percent in March, Table 3. Washoe County s Economy Showing Sluggish Growth Washoe County s economy continued to show sluggish growth. Reno-Sparks employment rose by 1,000 jobs (0.5 percent) from February to March. The Reno- Sparks unemployment rate fell from 12.2 percent in February to 12.0 percent in March. Compared to a year earlier, March visitor volume was down by 5.4 percent. Gaming revenues were up by 0.4 percent over the same period. Residential construction permits held steady in March, and commercial construction permits rose from extremely low levels, Table 4. Nevada Economic Outlook in Brief Although consumer spending and inventory investment were strong in first quarter, the pace of national economic growth slipped. Employment growth slowed in April. Southern Nevada s tourism and hospitality continue to grow, but gaming fell off the pace in March, and other sectors are not contributing much. In Washoe County, some favorable employment signs were seen in March. Nevada s construction shows signs of improving from very low levels. Issue 16 Copyright 2012 - All Rights Reserved

This information is provided compliments of Michael M. Lawson President and CEO of Commerce Real Estate Solutions Mike Hillis, SIOR, CCIM Managing Partner of Commerce Real Estate Solutions, Las Vegas To receive this newsletter by e-mail, please subscribe at www.comre.com/subscribe Commerce is a regional real estate firm with international ties, dedicated first and foremost to our clients. With the industry s premier professionals, and industry leading technology, our mission is to exceed our clients expectations through service excellence. For further information on the Nevada commercial real estate market, visit www.comre.com or call 702-796-7900. Commerce Real Estate Solutions 3980 Howard Hughes Parkway, Suite 100 Las Vegas, NV 89169 Tel (702) 796-7900 Fax (702) 796-7920 www.comre.com This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information contained in this report, while not guaranteed, has been secured from sources we believe to be reliable.