(1st Quarter, 2007)
 

     The majority of key economic indicators in Southern Nevada reported positive performances during the first quarter of 2007. Population and employment growth remained near the top of the list of all major metropolitan markets throughout the country. While the rate of expansion is somewhat softer than the feverish pace reported during the previous two years, it follows the historical business cycle coinciding with major expansions within the resort corridor. Longer-run growth patterns are likely to swing higher following the opening of Palazzo, Trump, Encore, City Center, Echelon Place and Fontainebleau along the Las Vegas Strip. In addition to projects already underway, it is worth nothing MGM MIRAGE’s $0.5 billion land acquisition along Las Vegas Boulevard may foreshadow yet another massive resort project in the not-so-distant future. Other pending and speculated transactions include the sale of the Sahara Hotel and Casino, the privatization of Harrah’s Entertainment and Stations Casinos, Inc., and potential sale of The New Frontier across from Wynn Las Vegas. These significant investments will require additional capital and more development activity to generate the required returns. Commercial development activity outside the tourism industry remained at strong levels with significant projects either completing construction during the quarter or commencing vertical development. During the same period, vacancy rates remained below regional and national levels. We expect this trend to continue in the majority of sectors trough the next quarter.

     While commercial construction permitting valuations remain high, the residential sector continues to report mixed performances. The residential resale market continues to experience rising levels of inventory, while homebuilders have responded positively with major reductions in permitting activity, offsetting existing home inventory. It is also worth noting a significant share of homes listed with Realtors remains vacant, suggesting they are unavailable for rent, potentially increasing demand in the apartment sector. Finally, convention and business-related travel continues to support the market’s core industry with strong demand for mid-week hotel rooms and the market’s continuously evolving convention and tradeshow sector. Also noteworthy is that professional and business services employment continues to rank high in terms of growth, supporting higher-paying jobs and increasing the base of potential consumer dollars. While spending activity remains up, per-capita expenditures have declined modestly in recent months, a condition that will reverse itself when a more balanced residential market prevails. The longer-range outlook remains bright as over $30 billion of investment activity in the resort corridor will ripple throughout the diversifying Las Vegas economy.

     When evaluating future market conditions, one must also evaluate the impact associated with strong employment growth projections as it relates to the residential market. Looking back, it is difficult to identify major metropolitan areas that reported both material declines in housing prices and above-average gains in the employment sector; it appears that Las Vegas will be no different during the balance of this decade. With this assumption stated, we would expect residential home values to remain well above their pre-2004 levels, continuing to cause housing affordability challenges and placing upward pressure within the for-rent sector. The balance of economic indicators will likely follow historical growth patterns as the market progresses and increases its worldwide appeal. It is worth noting a significant number of projects are programmed over the next several years (see accompanying table). In addition to projects moving forward, several sizeable luxury residential projects have recently completed construction, including the first tower at Panorama on Dean Martin Boulevard, the second tower at the Residences at MGM Garden, Sky Las Vegas on the Las Vegas Strip, and Manhattan located on Las Vegas Boulevard South.