Gennaro: “And we can charge anything we want—$2,000 a day, $10,000 a day—and people will pay it. And then there’s the merchandise…”
Hammond: “Donald, Donald…This park was not built to cater only for the super-rich.”
—Jurassic Park (1993)
If you’re reading this, there’s a decent chance you’ve read my previous work on the casino millennial problem as it relates to gambling—or rather, the complete lack of proper evidence that has been presented to support the idea that there even is one. There’s no point in rehashing that here (and if you’re not familiar with those articles, just Google “casino millennial problem”).
On the other hand, there is a risk that the Las Vegas Strip will have a real millennial problem in the future—and it has nothing to do with either gambling or generational quirks. Take a look at the table below and think about which parts seem most concerning to you.
What we’ve witnessed here is the literal destruction of the low-end hotel supply on the Las Vegas Strip.
In case it wasn’t immediately apparent, the years used in the table were selected based on Las Vegas Strip hotel implosions (some properties were imploded in parts at different times, so we use the year of the initial implosion here). Over this time period, visitation in Las Vegas nearly doubled from 23.5 million visitors in 1993 to the present record 42.9 million in 2016.
However, the low-end hotel room supply did not double along with it; in fact, exactly the opposite has occurred. The low-end hotel supply has been eliminated as the market has grown. Meanwhile, virtually every new project on the proper Las Vegas Strip either built or designed in the current millennium has been earmarked for four- or five-star hotel supply.
None of this is necessarily surprising in itself; but we should take a minute and think about why this is a problem.
Are we pricing millennials out of the future Las Vegas Strip market?
Now, there’s little question that the continual upgrade of the Las Vegas Strip is in large part what has driven the growth in visitation, by enhancing the appeal of Las Vegas and providing a bigger draw. There’s also little question that Las Vegas has provided considerable high-end value to visitors as compared to other potential vacation destinations.
But what we should really be concerned about is this: the prospect that entire legions of millennials and future generations will be priced out of the proper Las Vegas Strip entirely.
Like the gambling discussion on millennials, this is simple economics: When you drive down hotel prices, you widen the potential market of visitors. But when you cut out the low-end supply and raise the price floor, you are limiting the market of potential visitors.
And coming off the Great Recession, the average daily rate (ADR) on the Las Vegas Strip has more than rebounded: In January 2017, the Las Vegas Strip ADR hit $150.21—setting a new monthly record—and then broke that mark by hitting $152.30 in March.
Visitor Numbers At Stake; No Simple Solution
Certainly, the point here is not to blame Wynn Resorts, Las Vegas Sands, MGM Resorts International or anybody else for knocking down older buildings and building nice places. But if you’re a Las Vegas stakeholder—as anybody who lives or visits Las Vegas is, as are the casino operators who operate here—the increasing lack of low-end supply on the Strip is a problem that needs to be thought about, and/or a market to be addressed.
A big part of the problem is that there is no simple solution. The key pieces of Strip real estate are effectively pre-zoned for high-end hotel supply, as there doesn’t seem to be much of an appetite to spend $10 million an acre (Crown Resorts’ asking price for the 34.6-acre former New Frontier site is reportedly $400 million) on Strip real estate just to build a two-star dormitory. Ditto for Caesars Entertainment’s block of hotels at center Strip that’s been primed for redevelopment for over a decade now.
That said, the nearly perfect string of Las Vegas visitor growth itself is at stake. Perhaps not this year or next year, but at this rate at some point there is a wall to be hit.