Las Vegas Strip Faces Room Shortage, Leading to Higher Hotel Rates

Recent analysis suggests that the expected closure of The Mirage and Tropicana hotels is expected to have a drastic effect on room rates within the Las Vegas Strip. According to John DeCree, who is CBRE’s director of equity research, the rooms being taken out of circulation will act as a catalyst for earnings growth among mid-tier properties along the Las Vegas Strip.

Mirage and Tropicana Shutdowns Expected to Drive Up Hotel Rates on the Strip

On July 17 this year, Hard Rock International will close its doors for a significant renovation which is expected to last until the spring of 2027. This comes just after The Tropicana closed in April taking 1,467 more rooms out of the market. Both together take away almost five percent (4.9%) from what is available on the Las Vegas boulevard removing 4511 beds in total.

DeCree’s research shows these closures will bring positive results for other Las Vegas Strip operators. Last year, The Mirage brought in about one million occupied room nights and nearly $596 million in revenue. This will be a large amount of demand that must be redistributed among other properties which gives an opportunity for earnings for other hotels on the iconic Strip. DeCree even suggests the financial impact could surpass 2023 forecasts as the lower supply inflates average daily rates.

The Strip has demonstrated its resilience despite economic uncertainty and inflationary pressures dampening investor sentiment. Since 2021 there have been more than 7,000 added rooms with properties like Fontainebleau Las Vegas and Resorts World Las Vegas but even with occupancy not fully rebounding to pre-pandemic levels, the market has still managed to keep driving up the average daily rates. Over the past three months, occupancy has averaged 88.3%, bolstered by a strong calendar of events and a rebound in convention and international travel.

Mirage Closure Opens Door for Mid-Tier Hotels to Capture High-Spending Guests

DeCree believes consumer demand will not be affected by this significant reduction of available rooms on the Strip because MGM Resorts and Caesars Entertainment can easily accommodate most of it in their other mid-tier properties but there is a limit to how many additional room nights these operators are able to provide especially during peak events.

This could be an opportunity for properties such as The Strat that is owned by Golden Entertainment to attract more high-spending customers. DeCree’s analysis estimates that the distribution of one million room nights occupied at The Mirage could significantly help Strip operators increase occupancy and overall drive average daily rates up.

Since 2019, the Strip’s room inventory has grown by 8.4%, reaching 92,093 rooms. As the market adapts to the reduced supply, DeCree predicts a potential lift in investor sentiment heading into the latter half of 2024. He emphasizes that while many analysts forecast a decline in earnings due to broader economic concerns, the significant contraction in room supply is likely to counterbalance this trend, possibly leading to earnings upside for Strip operators.