Obviously, you’ve seen the Sphere. The massive, unmistakable structure just east of the Las Vegas strip has been a ubiquitous sight since opening last year. An 18,600-seat auditorium, the Sphere is a demi-globe wrapped in 580,000 square feet of 16K-resolution exterior LED screens. The result is an orb that hardly ever looks the same twice as it lights up the Nevada sky, projecting everything across its surface from a giant smiley face to an enormous blinking eye to a wrap-around game of Tetris.
While the Sphere is certainly hard to miss, the jury is still out on its financial viability. The venue earned $167.8 million in its first three full months of operation, according to a report released by Sphere Entertainment in February. That’s impressive at face value, but pales compared to $193.9 million in expenses over that same timeframe. Most of the loss, however, stemmed from a $116.5 million impairment charge tied to a failed second Sphere in London; adjusted for that and some other one-time liabilities, the Sphere’s operating income was reported at a more palatable $14.1 million.
The facility’s sustainability bears watching as a fascinating facet of the tourism and entertainment bounceback occurring across the Southwest Region, an area that includes Arizona, Nevada, New Mexico and Utah. The influx of funds from tourism and leisure are an important part of the region’s economic framework, stemming from national parks and outdoor adventures, as well as large destination cities such as Phoenix and Salt Lake City. Las Vegas stands as the region’s most extreme example, with the economic impact driven by the city’s juggernaut tourism industry reaching a record $79.3 billion in 2022, according to the Las Vegas Convention and Visitors Authority (LVCVA).
The pandemic, of course, ground travel to a halt and devastated the Las Vegas economy, with the metro area’s unemployment rate vaulting to 34% in April 2020, according to Federal Reserve Economic Data. That figure has since fallen to a more normal 5.3% as of December, though it remains a percentage point higher than the metro’s pre-pandemic jobless rate and roughly two points above the national average.
The story is similar throughout the region, on a variety of fronts. Visitor spending in Arizona plunged 41% from 2019 to 2020. Leisure and hospitality job losses in Utah were at 66,000 in April 2020, a 43.1% drop. The New Mexico Tourism Department estimated a loss of some $4.3 billion in total pandemic-related impact on the state.
Since, however, the regional tourism sector has resumed firing on all cylinders. Tourism revenue in New Mexico broke a record in 2022. Arizona tourism spending approached pre-pandemic levels that same year, while in Utah, key indicators such as air travel, national park visitation and tax revenue all met or exceeded 2019 levels.
Recent large-scale events are continuing to help the recovery. Las Vegas played host to this year’s Super Bowl, an event that brought $606.3 million in visitor spending and a total impact of $1 billion to the city. The inaugural Las Vegas Grand Prix Formula One event in November — during which the Sphere featured prominently as a backdrop for the race — was even bigger, generating $500.6 million in visitor spending and $1.5 billion in economic impact. ●
Las Vegas, with its growing population and robust job potential, has been an intriguing market for commercial investors of late, and there’s no sign of that appeal abating. Unemployment remains stubbornly high, but the median household income grew 3.0% year over year in 2024’s first quarter, reaching $76,400, according to a recent Cushman & Wakefield MarketBeat report. Job seekers are continuing to flock to the city, as the household count grew in the first quarter of 2024 by 2.7% annually to 918,700. Cushman & Wakefield anticipates such growth will boost the city’s gross regional product to $127.6 billion this year and $133.7 billion in 2025.
The industrial market, however, saw a major dip in deal activity to $89.6 million in the first quarter, compared to $196 million in sales one quarter prior and $281 million in the first quarter of 2023. Property prices are down, with an average per-square-foot acquisition price of $210, a 5% cut from the first quarter of 2023. Overall absorption fell into the red during the first three months of 2024, halting a streak of 39 straight positive quarters. Tenants vacated 1.7 million square feet of industrial space in the first quarter. Despite the slowdown, Cushman & Wakefield described demand as “stable,” though a strong pipeline of deliveries and the growing sublease space is leading to increased market challenges.
Sources: ABC4 Salt Lake City, Arizona Chamber Foundation, Billboard, Fox Business, Fox5 Las Vegas, Kem C. Gardner Policy Institute (University of Utah), KOB4 Albuquerque, Las Cruces Sun News, Las Vegas Convention and Visitor’s Authority, NPR, Newsweek, Tucson.com
What the Locals Say
We are a national lender based in Scottsdale, Arizona, and things are pretty sluggish right now. There is not a lot going on in our area. Most of what my company does is small-balance commercial and fix-and-flip lending. There are some construction projects that were already underway or had money committed to them that have been progressing.
But in terms of the sale of apartments or office buildings and that type of thing, there’s just not a lot going on because the sellers all expect better prices. But with interest rates so high, you can’t really borrow money and make anything work without really significant equity in the property. So, it’s just taken away a lot of leverage. This has been going on for a while now. But in the last year everything really slowed down.
If you are looking at any commercial statistics about the Phoenix market, they are going to be skewed for the better because Taiwan Semiconductor Manufacturing Company is building a facility north of the city that is absolutely huge. So, any statistics about industrial investment in this market are going to show a lot of activity because of that one project.
As for the rest of this year, I expect things to be pretty flat. You know, our industry was just crushed from 2020 to 2022, and last year was a period of just kind of surviving. Now, it looks like 2024 is turning out to be another ‘survive it’ type of year.
President
Capstone Financial
