Summary Overview: Economic

With a national recovery well underway, albeit at a painfully slow pace, southern Nevada’s core tourism industry demonstrated some improvements during the quarter. Based on reports released by the Las Vegas Convention and Visitors Authority (LVCVA), the valley welcomed 9.2 million visitors during the fourth quarter. This translates into a 3.5-percent increase over the same three-month period last year and 2.7 percent growth year-over-year, offsetting two years of decline. Hotels and motels reported a decline in average occupancy levels, with a 4.6 percentage point drop to 78.1 percent during the quarter. This decline comes on the heels of no additional rooms being added to the inventory from the prior year. However, Las Vegas faired quite a bit better than the national hotel occupancy rate, which was almost 6 percent lower in 2010 coming in at 71.8 percent.

In addition to the increasing volume of visitors, it appears their relative value is also improving. The average daily room rate jumped 2.1 percent from $90.80 (Q4 2009) to $91.88 (Q4 2010). Convention attendance was up 2.4 percent, while McCarran International Airport reported a slight increase of 0.2 percent from the same quarter last year, accounting for 9.9 million passengers.

According to the latest data released by the Nevada Gaming Control Board, Clark County saw its gaming win edge up 1.4 percent to $2.2 billion during the fourth quarter of 2010. For the full year, gaming revenue topped $8.9 billion, almost a 1.0 percent year-over-year change. Contributing to the increase was a 3.4 percent increase in performance on the Las Vegas Strip, which reported revenues of nearly $1.5 billion and Laughlin which grew at 3.6 percent clip reversing a decline in the previous quarter of 1.6 percent. Virtually all other submarkets in southern Nevada reported losses in revenue year-over-year, including Downtown (-1.1 percent), Boulder Strip (-4.1 percent), North Las Vegas (-5.3 percent), and Mesquite (-0.3 percent).

The latest data released by the Nevada Department of Employment, Training and Rehabilitation indicate that the Las Vegas-Paradise MSA unemployment rate increased 0.6 percentage points over the prior year to 14.9 percent. Compared to the prior quarter, the unemployment rate decreased 0.7 percentage points from 15.6 percent. Notably, southern Nevada’s labor force added almost 3,000 jobs during the quarter. The increase in employment remains stemmed from a struggling construction industry and in leisure and hospitality. Leading in net sector job losses over the last 12 months include construction (-15,300), trade/transportation and utilities (-2,800) and leisure and hospitality (-2,900). Worth noting is that the pace of decline has slowed and in several sectors, recent figures have shown modest demand indicating the worst may be behind us. Nevertheless, full recovery is still below the horizon, as 134,100 jobs remain lost since the recession began in December of 2007.

According to the latest calendar year 2010 statistics from the Nevada Development Authority (NDA), twenty-six (26) new or expanding business came to Las Vegas. Those companies created 1,265 jobs with a total payroll of $53 million.

Local residential and commercial markets continued to struggle to find balance during the quarter. According to the latest home sales data reported by SalesTraq, new home closings totaled 1,067 during the quarter with a median closing price of $219,000 during the final month of the quarter. The number of sales for new homes is down 35.1 percent compared to the same three months of the prior year, while the average closing price is up 4.8 percent year-over-year. Meanwhile, existing home closings totaled 12,424 - down 11.8 percent over the prior year - with a median closing price of $114,500 during December 2010 (-0.4 percent). This is a slight improvement from the previous quarter when the median price fell 1.7 percent.

Southern Nevada’s office and retail markets witnessed 118,745 square feet and 147,349 square feet of negative net absorption, respectively, as more tenants moved out of space than moved into. Office vacancies were up 0.2 basis points from the previous quarter to 24.2 percent. Nevertheless, the vacancy rate remains higher than the 23.0 percent reported one year ago. The retail market vacancy rate fell a modest 0.2 basis points to 10.5 percent compared to the previous quarter. Compared to the same period of the prior year (Q4 2009), the vacancy rate remains 0.3 percentage points higher. The Las Vegas Valley industrial market also continued to signal weakness as new space entered a market already dealing with a supply-demand imbalance. Several projects remain stalled or delayed due to a lack of demand and an abundance of supply. During calendar 2010, there was 22,000 square feet of industrial space under construction and only 120,000 square feet in the planning phase.

Including the additional pre-leased or build-to-suit space, the market reported approximately 417,700 square feet of negative net absorption during the third quarter, bringing the total amount of vacant industrial space to over 17.5 million square feet. The latest figures reflect the eighth consecutive quarter of negative net absorption, and the 16.9-percent vacancy rate is a new record high for the Las Vegas region. Until more stability emerges, we anticipate existing trends to persist such as falling prices, increased project failures, and elevated vacancy rates.