From an appraiser’s perspective, the hospitality market in Las Vegas is struggling through the “recession of 2008.”  This is of course due to increasing unemployment nationally which has led to less travel to destinations like Las Vegas.

Las Vegas Visitors & Convention Authority occupancy figures indicated a steadily falling occupancy for both hotels and motels in 2008.  When compared to last year, hotel occupancy in September, 2007 was 94.2% but fell to 88.6% in September of 2008 indicating a 5.6% decrease.  Motels occupancy losses were more pronounced and fell from 70.3% to 52.1% when the same two months were compared, a decline of 18.2%.

Declining occupancy was noted by Marcus & Millichap throughout the Western Region in September of 2008, and the decrease was confirmed by statistical studies conducted by others in the Las Vegas market. [1]

The supply and demand rooms is always in flux, however Las Vegas is about to brace from some very large supply increases while experiencing the falling demand for rooms discussed.  The CityCenter project and other projects will add about 9,100 rooms in 2008 per LVCVA statistics, with many more to come in 2009.

With occupancy rates falling and competition for a smaller number of travelers increasing, owners of hotels and motels will continue to lower their room rates to keep customers coming through the door.  The combination of lower room rates and lower occupancy translates into lower profits.

RevPAR, or revenue per available room, is considered by some to be the best indicator of hospitality industry health, since it is a measure of profits.  RevPAR for selected markets in the Western states was slightly higher or slightly lower in September of 2008 versus September of 2007.  A drop in RevPAR is, however, anticipated for Las Vegas in 2009.

As noted by Marcus & Millichap “Investment activity has slowed, primarily as a result of softening operating fundamentals and the imposition of tighter underwriting standards required to obtain acquisition financing.” [Millichap, p.3]  Thus, while values have not significantly decreased, the number of sales has “fallen 40 percent in the last year.” [Millichap, p.3]

The Las Vegas hospitality market in 2008 is suffering from the negative effects of the national economic downturn.  Hotel and motel occupancy is decreasing, room supply is dramatically increasing, RevPAR is expected to drop in 2009 and sales volume is off by 40% based on recently reported statistics.  With net profits expected to be down in the short term future, the average sales price per room of exiting non-gaming hotel / motel properties is not expected to increase in 2008 or early 2009, and the average sales price per room may decrease in 2009. 

On a cautionary note the generalization made regarding a downward trend in the hospitality market does not mean that every hotel / motel will not increase in value.  The real estate market is imperfect, and each existing or planned project has its own individual physical and economic characteristics that must be analyzed before an opinion can be formed.