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It seems that every time a new
mega resort opens on the Strip, cries of “oversupply of hotel rooms”
ring out, along with fears of a slowdown in visitor demand.

After Wynn Las Vegas opened five
weeks ago, several Wall Street analysts cited a glut of new hotel rooms as among
the reasons that gaming stocks have fallen slightly out of favor in recent

Fears of too many hotel rooms and
of a slowdown are unfounded, according to Bear Stearns analyst Joe Greff.

Greff said it would take at least
five years before Las Vegas’ room supply catches up with visitor demand.

“The Las Vegas Strip is a
unique market in that new room supply typically stimulates room demand,
visitation volume and increased spending levels,” Greff said, adding that
the opening of Wynn Las Vegas doesn’t change that equation. He further
believes that the tumbling prices of gaming stocks are not unusual as shares are
often sold off in the summer months.

Greff’s assessment of the
impact of new hotel rooms on Las Vegas tourism is based on a new Bear Stearns
report released last week.

The report tracks construction of
new hotel rooms from 1970 to the present, and makes projections through 2010.

“Since 1970, visitor volumes
have grown at a faster pace than the Las Vegas room supply,” Greff said.
“This in turn has driven room demand and led to consistently strong
occupancy in the 80 percent to 90 percent range.”

Moreover, the average length of a
visitor’s stay and his trip budget have increased as Las Vegas evolved from a
one-dimensional casino town into a diversified destination-resort market, Greff

Interestingly, spikes in visitor
volume can be tracked when a single mega resort opens, Greff said. For instance,
room demand surged 17 percent in 1993 following the opening of the MGM Grand,
which dumped more than 5,000 hotel rooms into the market.

In addition, the 10 percent
increase in guest rooms attributable to three new resorts in 1999 produced a 13
percent increase in demand.

Over the years, Las Vegas has
grown in spurts and visitor demand has always followed, almost religiously.

“In each year that supply
grew by more than 8 percent, demand grew on average by 10.4 percent,” Greff
said. “History suggests that new Las Vegas development will spur increased
visitation volumes.”

It will be interesting to see how
new development affects visitation statistics, since much of the new development
over the next five years will be residential and condominium hotels.

“We expect the Las Vegas
Strip to undergo capital improvements of approximately $25 billion-plus in new
hotels, condo/hotels and casinos over the next five years,” Greff said.

New construction over the next
five years will consist of about 46,000 hotel, condo-hotel and timeshare units.
But the growth rate will be about 5.2 percent a year, nearly the same aggregate
growth rate registered between 1970 and 2004.

Greff said the influx of new
condo and timeshare units shouldn’t change visitor demand.

“We believe this relatively
new trend of tourist-driven real estate demand (sparked by the first Turnberry
Place tower in 1999) is strong and will continue to intensify in the next few
years,” he said.

And, despite a possible erosion
of some hotel revenue as some former customers buy their own condo units, demand
should once again follow supply.

“The coming wave of capacity
increases will again induce demand and revenue growth, as was the case in the
past,” Greff said.




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