Mixed Signals for Real Estate, Economy:
Election, Politics Creating Uncertainty
Published January 15, 2020
As we commence 2020, what are the notable bright spots of the Las Vegas economy?
For starters, the region’s unemployment rate is at the lowest it’s been in 12 years. Inflation-adjusted wages are finally going up, but they’re still lagging and below what they were at the beginning of 2007. The housing market is cooling off, which is a promising sign for buyers, because it had overheated, in our view. We like to see our growth indicators in a sustainable range of 2-3% per year. Currently, the story is still a bit mixed. Some indicators are above this range, others are growing at a lower rate, and some are on the decline. That said, I see the momentum experienced in 2018-2019 carrying over into this year.
Source: RCG Economics
The housing market is showing signs of a pullback.
"As long as consumer confidence is high, and people are willing to travel to Las Vegas and spend money in our hotels, retail centers, restaurants, casinos and entertainment venues, then we’ll continue on a healthy growth trajectory."
Southern Nevada Metrics
Where do you see the biggest areas of concern?
I think the uncertainty around policies of the Trump Administration has us concerned. This is mostly around the instability and lack of direction around tariff policies, as well as geopolitical uncertainty that the Administration has created. The Iran situation is the most recent example. This is causing concern in the international and domestic business community. That sentiment is reflected in a number of the U.S. business confidence indexes that we track.
The 2020 election is adding to the level of uncertainty as well. This is a pretty normal response to any Presidential election. When you don’t know who will be in power and what their policies will be, the business community tends to pause a bit until more certainty presents itself.
Despite these factors, the Southern Nevada economy remains healthy. It may be able to withstand the aforementioned uncertainty because of the region’s current and prospective construction activity. However, we should also bear in mind that we are still very dependent on our biggest export industry, which is tourism. This means that the economic health of the rest of the nation, and even the rest of the world, greatly affects our resilience. The Southern Nevada economy remains vulnerable because it still depends heavily on discretionary spending by visitors. As long as consumer confidence is high, and people are willing to travel to Las Vegas and spend money in our hotels, retail centers, restaurants, casinos and entertainment venues, then we’ll continue on a healthy growth trajectory. We should always remember that while Southern Nevada may be geographically isolated, it certainly isn’t economically isolated. We are only as strong as our tourism sector.
"...I would also keep a close eye on what the Governor and the Legislature are doing and will be doing when it comes to revamping the state’s economic development incentive and business attraction strategy."
What signs should real estate professionals keep an eye on that could affect their business?
They should keep an eye on what is happening with interest rates, since that will have an obvious effect on the ability to borrow for investing, purchasing and developing real estate. Another key issue is the availability of developable land and what our Congressional delegation can do in Washington to push forward the Clark County Lands Bill. The bill will simultaneously protect thousands of acres of environmentally sensitive land, while opening additional land for development, especially in the Ivanpah Valley, which connects Las Vegas to Southern California.
They should also pay close attention to the Southern Nevada Water Authority’s capital improvement program for building additional water infrastructure. I serve on a Citizens Advisory Committee that is evaluating the program and making recommendations about these investments, as well as what the community’s long-term water conservation strategy should be.
Additionally, I strongly feel that we should all be more focused on the Fourth Industrial Revolution, which includes automation and Artificial Intelligence (AI), and its impact on our workforce and economy. We should keep a close eye on how the hospitality industry responds to these technologies and how they’re making their way into other industries. Even though they are in their infancy, automation and AI will have a potentially significant impact on Nevada.
Lastly, I would also keep a close eye on what the Governor and the Legislature are doing and will be doing when it comes to revamping the state’s economic development incentive and business attraction strategy. That will, undoubtably, have an impact on our real estate market and economic prospects.
Governor Steve Sisolak and the State Legislature's changes to the economic development incentive and business attraction strategy will have major implications for the future makeup of the Nevada economy.
"Studies have shown that stadiums and arenas have a positive impact on tourism and entertainment, but not necessarily on the overall makeup of an economy."
2020 is clearly the year of the Raider in Las Vegas. Can you please give us a clearer idea of how, if at all, this will change our economy?
The coming of the Raiders and Allegiant Stadium is helping us broaden what is known as the Las Vegas experience economy. Studies have shown that stadiums and arenas have a positive impact on tourism and entertainment, but not necessarily on the overall makeup of an economy. These kind of facilities provide locals and visitors to Las Vegas an additional outlet for entertainment, which is obviously a very positive thing. The same could be said for T-Mobile Arena and the arrival of the Golden Knights, the Smith Center and any other large-scale entertainment venues.
Rendering of Allegiant Stadium.
That said, there is very little evidence from the research and case studies worldwide that stadiums and arenas in and of themselves drive economic development or improve the skills of the overall workforce. However, if having the Raiders, or any of our other professional teams here spurs the growth of other sectors, such as sports medicine and equipment manufacturing, then that’s a different story altogether. A catalyst like that would transform Southern Nevada’s economy in a very meaningful way. In my opinion, if that were to occur, it would take at least five to ten years after the completion of Allegiant Stadium for our economy to feel this “spin-off effect.” In fact, a December 2019 Deutsche Bank analysis report on Las Vegas surmised that Allegiant Stadium will not have a material effect on the local economy. According to Deutsche Bank in that report, “While most view the move by the Raiders to Las Vegas as a distinct positive for the Strip, a concept we agree with in principle, we are less bullish with respect to what it ultimately means for Strip operators.”
If the Raiders and the other teams in the region could attract an industry such as sports medicine, it would be transformative for the Southern Nevada economy.
From a real estate standpoint, the stadium will likely encourage development and redevelopment in and around the area, but it’s unlikely to have a large-scale impact on development activity throughout the valley if the spin-off effect does not take place.
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