Nov. 15, 2011--Analysts at CB Richard Ellis project Strip revenue to increase by up to 5.7 percent next year, but the volatility of the baccarat market could offset any gains.

Jacob Oberman, director of gaming research and analysis for CBRE's Global Gaming Group, said he expects the mass market on the Strip will show a revenue increase of between 1.8 percent and 4.8 percent in 2012 and hotel rates are expected to climb between 3 percent and 6.2 percent for the year.

But baccarat, the game of choice of many Asian high-rollers who visit Las Vegas, could show a downturn of as much as 5 percent or an increase of as much as 5 percent, they said.

Oberman and Brent Pirosch, director of CBRE's gaming consultant services, in a presentation to community real estate and finance leaders at a lunch at Panovino, said while the 2012 outlook is mostly positive, there are several warning signs for a downturn in 2013.

"Although there are some troubling signs that can be seen on the horizon, the positive momentum that has built up in the areas of convention demand and leisure spending since 2010 will not be completely undone in 2012," the authors said in an executive summary of their findings.

The biggest positives the analysts found for next year are growth in U.S. household net worth, which has increased despite late 2011 declines in home values and stock prices, and strong convention and meetings bookings at Las Vegas resort properties next year.

The slight growth of the U.S. gross domestic product was listed in the report as a non-factor, but declining air capacity driven by US Airways' flight cuts, and the aging of "Baby Boomers" are potential negatives driving the Strip's financial fortunes.

The authors said U.S. household net worth has been the best leading indicator for Strip revenue in the past.

The reason Oberman and Pirosch are pessimistic about baccarat, played mostly at the most luxurious resorts on the Strip, is that wealth metrics in China are weakening, as evidenced by a slowing luxury residential market and a slumping Chinese stock market. The authors also said Singapore has ramped up baccarat play at its two casinos and could steal customers.

The CBRE report includes an analysis of the Strip's strengths, weaknesses, opportunities and threats. Among them:

--Las Vegas continues to have the best convention and meetings facilities in the country and that will continue to drive business traffic to the city.

--The lack of new resort development -- something that drove traffic to Las Vegas in the late 1980s and 1990s -- could hurt efforts to attract new customers. But the lack of new development also means a stable supply-and-demand dynamic with no new competition and strengthening same-store profit growth. Strip operators also have learned to be more efficient.

--Increased international exposure is viewed as an opportunity for Las Vegas, but travel security restrictions imposed in the post-9/11 era and the difficulty of obtaining a visa in some countries are seen as weaknesses.

--The legalization of online poker could be a boon to Strip operators with strong brands and marketing strategies in place.

--While no single gaming market outside Nevada has had a negative impact on Las Vegas, they could collectively if the city's product offerings are stale. California tribal casinos could attract the mass market with upgraded facilities and casinos in Macau and Singapore could steal customers, especially in the baccarat sector.

--Oil price shocks could lead to declines in airline capacity, especially since Las Vegas is a low-yield market to airlines. The authors also noted the prospect of video conferencing technology biting into the city's convention business.

--The report said shifts in demographics will mean that so-called "peak spenders," those in the 44-to-52 age bracket, would decline until around 2022.

John Knott, the head of CBRE's Global Gaming Group, said the most frequently asked question he gets is: When will construction return to the Strip?

Oberman said because of the cost of development and the continued scarcity of credit, he doubts the completion of Boyd Gaming's Echelon project and the Fontainebleu development would pencil out anytime soon.

But Knott said the economic downturn also has dropped Strip real estate prices by about 90 percent, making an acquisition now a potentially good investment.

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